The Relationship between Tangible Investment and Consumer Saving
HIS article is concerned with the deterT minants of consumer saving in the short run. Preoccupation with consumer saving springs from a desire to predict year-to-year changes in the over-all level of economic activity and to show the effect of consumers' actions on these year-to-year changes. As its central theme, the article focuses on and demonstrates the existence of a strong relationship between tangible consumer investment and consumer saving. Potentially, the use of this relationship, which has been hitherto overlooked, may enable economists to achieve better predictions of consumer saving. The analysis is restricted to the consumer sector only. (Thus, this article does not deal with the essentially entrepreneurial investments of consumers'whose occupation classification is self-employed businessman or farm operator.) Supporting data are introduced from the I94952 Surveys of Consumer Finances. Deflationary saving, or in net claims, defined as disposable money less total expenditures for goods and services, has been taken as our dependent variable. This variant of saving does not count as saving purchases of tangible assets such as houses or cars; only changes in claims to assets are counted as saving. We chose this variable because we are in-' terested in short-run fluctuations in the level of economic activity. Deflationary saving measures the extent to which the actions of economic units increase (the case of negative or decrease (the case of positive the circuit flow of The usual variants of saving which define saving as change in net do not measure directly additions to or subtractions from the flow and thus are less suitable for our purposes.' If the magnitudes and movements of the net worth variants of saving were highly correlated with deflationary saving, they could be used as proxies for it, but this is not the case.2 The question may legitimately be raised as to why we do not consider the use of Milton Friedman's3 (or saving) concept. The answer is that the permanent consumption concept is designed to eliminate just those transitory elements of consumption (or in which we are chiefly interested, namely those which account for most of the year-to-year variation in saving. For a similar reason we have employed measured income rather than income.
- DOI
- 10.2307/1927454
- Volume
- 41 (3)
- Pages
- 287
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