The determinants of household saving behaviour in Malta

Abstract

This study analyses the determinants of the aggregate household saving rate in Malta; an important macroeconomic variable which in standard short-term analysis is considered as a ‘residual’. The aggregate household saving rate, fluctuated significantly over the past thirteen years, rising from 6.4% in 2000 to 10.3% by 2002, falling significantly to 4.1% by 2006, doubling to 8.4% during 2007 and stabilising between 5% and 7% in the years 2008 to 2012. Such sharp swings warrant an investigation to uncover the underlying drivers, and this paper finds evidence that the estimate of the saving rate correlates with a set of macroeconomic variables The results of an estimated equation are in line with the theory and robust to different estimation techniques. One should keep in mind that there are no official statistics on disposable income and therefore this paper uses an in-house estimate of disposable income, which may be subject to measurement errors.