Does An Increase In Savings Explain the Housing Boom?
In their Cato article, H&H don’t actually provide empirical evidence for the claim that it was a foreign “savings glut” that caused the housing boom, though in a footnote they give several references; here is a good representative. Many of the proponents of the “savings-glut” hypothesis point to the “World Economic Outlook” put out by the IMF to make their case. (Specifically, look at Table A16 in this pdf.) The alleged smoking gun is that savings as a percentage of GDP rose sharply among emerging and developing economies just as the housing boom kicked into full gear. But even using the graphic they themselves construct, we see something puzzling: Now before I showed you the above chart, weren’t you expecting savings to shoot way up during the housing boom, and then fall back down when the bust kicked in? Yet as the chart above shows, savings rates among the economies in question rose throughout the boom and bust in housing. If the increased savings rates from 2001–2006 are supposed t
