Predictive Accuracy of Quarterly and Annual Aggregate Saving Functions

Abstract

Aggregate saving functions have been grouped into several models which have similar theoretical underpinnings. They are then tested under criteria pertaining to their predictive accuracy and their economic reasonableness. It is found that saving is predicted much more accurately when it includes net investment in consumer durables (i.e., “use value” saving, ^D S) as opposed to when it is defined as only personal saving (S). In predicting ^D S, the functions which use current income and lagged consumption perform best. In predicting S, the functions which perform best are those which include liquid assets in addition to current income and lagged consumption.