S-I dynamics

S-I dynamics - World Economic and Financial Surveys WORLD...

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WORLD ECONOMIC OUTLOOK September 2005 Building Institutions International Monetary Fund World Economic and Financial Surveys
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two factors are particularly important in explain- ing the decline in saving in industrial countries over 1997–2004 (Figure 2.5). First is the increase in credit to the private sector, which is likely approximating for wealth effects from the sharp increase in house prices in many countries (but not Japan). Second is the fall in public saving, which is particularly important in the United States—where according to the regression esti- mates it accounted for over one-third of the 4 !/2 percentage point decline in national saving since 1997—and Japan. Another factor that has played an important role in Japan and the euro area—but not in industrial countries as a group— is the rise in the elderly dependency ratio. Turning to emerging markets, the results also suggest that two factors have been key drivers of the recent increase in saving. First, there has been a sharp increase in public sector saving, particularly in China and the oil-producing countries (which has more than offset the weak- ening in public saving in east Asia). Second, stronger output growth has boosted saving in all emerging market regions (again, this appears particularly important in China, where it likely contributed to the sharp increase in corporate saving—see Box 2.1). In contrast, rising oil prices have had a modestly negative effect, with the boost to saving in oil-producing countries offset by the adverse effect elsewhere (particu- larly in parts of Asia). The investment equation is less successful than the saving equation in tracking recent developments. This result is similar to other recent studies, which have found that traditional econometric models of investment have diffi- culty explaining recent trends. 12
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S-I dynamics - World Economic and Financial Surveys WORLD...

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