This paper studies whether such uncertainty has had an impact on the savings behavior of households. More specifically, we research the effect of consumer confidence, as captured by ten consumer confidence indicators from the Joint Harmonised European Union Consumer Survey, on the savings rate of households. In other words, we study whether consumer confidence has any power in explaining household saving and if so, which specific aspects of uncertainty (e.g. financial uncertainty or general economic uncertainty) play the most important role. For this purpose we exploit a panel data set of 19 EU countries over the period 2001-2014. To tackle the issue of potential endogeneity between the households’ savings rate and consumer confidence, we use an instrumental variable approach.
Our results suggest that uncertainty relating to the financial situation of households has a substantially larger effect on household saving than general economic uncertainty, which indicates households are more concerned about how their personal financial situation develops than about the state of the general economy. Moreover, we find that the impact of uncertainty on household saving has increased after the crisis: uncertainty plays a larger role and households incorporate a broader array of confidence indicators to determine their current state of uncertainty. This could potentially be due to a threshold effect: after the GFC, consumer confidence dropped to such a low level, that it altered how households incorporate uncertainty in their savings decisions.