The relationship between saving rate and interest rate in dynamic panel data models of the OECD countries

This thesis investigates the link between interest rates and household saving behaviour on a sample of 23 advanced OECD economies between 1995 and 2022. It employs advanced econometric methodologies of mean-group-based estimation of error-correction models to examine both short-run impacts and long-run relationships between interest rates and net household saving rates, while also controlling for several other determinants, such as inflation expectations, income levels, and measures of demographics, public sector, and financial development. Furthermore, various robustness checks and comparisons across different estimation methods are performed. The key conclusion is that there appears to be a significant positive association between the interest rates and the net household saving rates in the long run, and predominantly positive, although infrequently significant, relationship between these variables in the short run. Additionally, several other variables are also found to be significant determinants. The paper further compares the findings to previous analyses, highlighting advancements in methodology and empirical clarity. The results of this analysis contribute to the broader understanding of household decision making and offer insights into the drivers of saving behaviour in advanced economies, allowing for the creation of more effective policy measures.