Consumer Savings Behaviour at Low and Negative Interest Rates 1

How does consumer savings behaviour respond to periods of very low and negative interest rates? Exploiting cohorts of consumers from a data-rich multi-country survey, we show how the likelihood of saving responds positively to changes in the nominal interest rate when interest rates are relatively high but it declines steadily toward zero at lower levels. At very low levels of the interest rate, there is also some weaker evidence that the response is locally negative implying a decline in interest rates may be associated with a higher likelihood of savings. This negative response is shown to be linked to central bank “information shocks” which capture the central bank's signals about the future state of the economy. These findings resonate with theoretical models that emphasise how such news effects may give rise to state-dependence in the strength and even the sign of interest rate transmission to savings.