This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. Journals
  3. American Economic Review
  4. December 2008
  5. The Response of Household Saving to the Large Shock of German Reunification

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

The Response of Household Saving to the Large Shock of German Reunification

  • Nicola Fuchs-Schundeln
American Economic Review
vol. 98, no. 5, December 2008
(pp. 1798–1828)
Download Full Text PDF

Abstract

German reunification was a large, unexpected shock for East Germans. Exploiting German reunification as a natural experiment, I analyze the validity of the life-cycle consumption model. I derive three stylized features concerning the saving behavior of East versus West Germans after reunification: (i) East Germans have higher saving rates than West Germans; (ii) this East-West gap is increasing in age at reunification; and (iii) for every cohort, this gap is declining over time. I show that a comprehensive life-cycle model can replicate these features. The precautionary saving motive is essential for the success of the model. (JEL D14, D91, E21)

Citation

Fuchs-Schundeln, Nicola. 2008. "The Response of Household Saving to the Large Shock of German Reunification." American Economic Review, 98 (5): 1798–1828. DOI: 10.1257/aer.98.5.1798

Additional Materials

JEL Classification

  • D14 Personal Finance
  • D15 Intertemporal Consumer Choice; Life Cycle Models and Saving
  • E21 Macroeconomics: Consumption; Saving; Wealth
  • R23 Urban, Rural, and Regional Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics