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  • The outbreak of COVID-19 pandemic in 2020, concomitant government restrictions and reduced mobility of households resulted in lower availability of certain goods and services, decreased consumer demand and sharp increase in the forced (i.e. involuntary) savings rate of households in many countries. The goal of the paper is to identify the determinants of forced household savings in 2020 in 16 European Union (EU) member states. Our study is related to two strands of literature. First, there is a growing literature on economic effects of the pandemics. Second, our paper is a contribution to the ogoing discussion on the determinants of household savings. Our analysis consists of two steps. First, following the previous studies on precautionary savings, we use a panel model to explain the fluctuations of gross household saving rate and we interpret the residuals from that model as forced savings. Second, we construct a random-effect panel model to explain the evolution of household forced savings as a percentage of disposable income in EU countries. We show that higher severity of COVID-19 pandemic determined either by the intensity of government restrictions or number of COVID-19-related deaths led to higher forced savings. We also show that greater government support during pandemic proxied by deterioration of structural general government balance in relation to GDP by 1 percentage point led to increase in forced savings by 0.82-0.93% of disposable income. Results of the estimation also suggest that the share of population aged 35-39 has a positive impact on forced savings as this group usually consists of well-off individuals having stable employment. Further, behavioral factors matter and development of the savings culture has positive impact on forced savings. Our results show that common pandemic shock may lead to discrepancies in forced savings in affected countries and their volatility depends largely on government response in form of imposed restrictions as well as financial support for households and enterprises. Further, strong fiscal response to pandemic shock usually improves the financial situation of low-income earners thus leading to higher forced savings. Therefore, strong fiscal support during the pandemic can be likened to sowing the seeds for post-pandemic recovery as savings accumulated during pandemic shock may be used to finance the pent-up demand. This, in turn, suggests that fiscal responses during the pandemic may act as a significant driver of post-pandemic business cycle (de)synchronization among EU member states and, more importantly, euro area countries. (xsd:string)
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  • Determinants of Forced Household Savings during COVID-19 Pandemic (xsd:string)
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  • 37th EBES Conference, Berlin, October 6-8, 2021 (xsd:string)
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  • In 37th EBES Conference, Berlin, October 6-8, 2021, 270-281, 2021 (xsd:string)
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