The response of household saving to the large shock of German reunification

The response of household saving to the large shock of German reunification

The

response of household saving to the large shock of German reunification

Fuchs-Schündeln

Nicola

Fuchs-Schündeln, Nicola

Author

Author

text

working paper

Chestnut Hill, Mass. Center for Retirement Research at Boston College20082008monographic

Chestnut Hill, Mass.

Chestnut Hill, Mass.

Center for Retirement Research at Boston College

2008

2008

monographic

Englisheng

English

eng

electronicapplication/pdfborn digital

electronic

application/pdf

born digital

German reunification was a large, unexpected shock for East Germans, with different economic consequences for different birth cohorts. Exploiting German reunification as a natural experiment, I analyze the validity of the life-cycle consumption model. In the empirical part, I derive three stylized features concerning the saving behavior of East vs. West Germans in the 1990s: (i) East Germans have higher saving rates than West Germans after reunification, (ii) this East-West gap in saving rates is increasing in the age of the birth cohort, and (iii) for every cohort, this gap is declining over time. The theoretical part investigates whether a comprehensive life cycle model can predict these three features. I find strong evidence in favor of rational, forward looking saving behavior. The precautionary saving motive is essential in replicating the features from the data.

Nicola Fuchs-Schündeln.

CRR WP2008-21

CRR WP2008-21

CRR WP

2008-21

http://crr.bc.edu/images/stories/2008-21.pdf

MChBEnglisheng

MChB

Englisheng

English

eng