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Does Financial Reform Raise or Reduce Saving?

Oriana Bandiera¹; Gerard Caprio²; Patrick Honohan²; Fabio Schiantarelli³

¹ London School of Economics and Political Science · ² World Bank · ³ Boston College

ServŽn for useful suggestions. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent. DOES FINANCIAL REFORM RAISE OR REDUCE SAVING? By Oriana Bandiera*, Gerard Caprio Jr.**, Patrick Honohan* * and Fabio Schiantarelli* (*Boston College, **World Bank) The effect of financial liberalization on private saving is theoretically ambiguous, not only because the link between interest rate levels and saving is itself ambiguous, but also because financial liberalization is a multi-dimensional and phased process, sometimes involving reversals. Some dimensions, such as increased household access to consumer credit or housing finance, might also work to reduce private savings rather than increasing them. Furthermore, the long-term effect of liberalization on savings may differ substantially from the impact effect. Using Principal Components, we construct a 25-year time series index of financial

DOI

10.1162/003465300558768

Volume

82 (2)

Pages

239-263

Language

en

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