Interest rate uncertainty and savings: evidence from microdata

This paper studies the effect of interest rate uncertainty on savings using microdata from the Survey of Consumer Finances 1989-2016. We find that, moving across the distribution of labor income, average wealth increases while interest rate uncertainty tends to fall. Strikingly, the average wealth of the top 10% labor income earners is on average twenty-fold larger than that of individuals belonging to the bottom 10% of the labor income distribution. Finally, savings reduce when interest rate is more uncertain. This suggests that an insurance policy against interest rate uncertainty would lead to an increase in aggregate capital stock.