Households savings and inflation expectations: Cointegrated evidence from South Africa

Abstract

The main aim of this paper is to find out if expected inflation by different sectors has a long-run effect on household savings in South Africa for the period 2002Q1 to 2013Q4. This is established using cointegration and innovation accounting techniques (variance decomposition and impulse response functions). Prior to the establishment of such relationship, the time series properties of data are performed and this include, the unit root test (Zivot-Andrews) in order to establish the stationarity within the series. The cointegration test reveals the existence of the long-run relationship between household savings and expected inflation in South Africa. Innovation accounting techniques indicated a significant contribution of the explanatory variables to household savings. VD shows that inflation expectations from analysis (A), business (B), finance (F) as well as trade unions (TU) bring some innovations into HHS and that variations in HHS are largely due to changes in expected inflation from TU. This is also supported by the GIRFs, which indicate that HHS reacts to shocks in expected inflation