A CRITICAL REVIEW OF PRECAUTIONARY SAVINGS AND THEIR IMPLICATIONS FOR KEYNESIAN STIMULUS DURING COVID-19

Authors

  • Khoo Sheng Peng
  • Soon Jan Jan
  • Lim Hock Eam

DOI:

https://doi.org/10.32890/jes2025.7.2.1

Abstract

During Coronavirus Disease 2019 (COVID-19) crisis, policymakers rely on Keynesian-economic stimulus packages (ESP) to help economic agents in surviving from economic stagnation. However, precautionary savings phenomenon can affect ESP effectiveness negatively over time according to precautionary savings theory and permanent income hypothesis, which is greatly underexplored in the literature. Thereupon, this study takes initiative to examine how unprecedented non-pharmaceutical interventions (NPIs) that are induced by the pandemic cause to the precautionary savings. A critical review was employed and the results highlighted that NPIs, heightened economic uncertainty, long-term income expectations, structural financial constraints, and resultant behavioural shifts are key factors of the precautionary savings behaviour’s outbreak. Besides, degree of economic uncertainty—shaped by severity and duration of the NPIs, future employment prospects, and perceived long-term income shocks are key factors in determining the impact of precautionary savings behaviour on demand transmission mechanism of the Keynesian-ESP. This study concludes that ESP has generate diminishing marginal utilities of consumption and investment relative to saving. These findings call attention to practitioners for a re-examination of Keynesian frameworks by integrating behavioural insights from the other theories, while suggesting policymakers to implement complementary strategies, targeted fiscal measures, and clear communication in alleviating uncertainty and stabilizing lifetime income expectations during crises. Due to some methodological and theoretical limitations, the precise impact of precautionary savings behaviour on the effectiveness of Keynesian-ESP remains ambiguous in this critical review. Thereupon, future research should adopt more robust empirical methodologies and structural models that incorporate longer time horizons and finer micro-level data.

Author Biographies

  • Soon Jan Jan

    Dr. Jan-Jan Soon is currently an Associate Professor at Universiti Utara Malaysia (UUM). She has been an academic with UUM for more than 2 decades, since 2001. She received a 3-year postgraduate scholarship from New Zealand’s University of Otago and earned her PhD in economics well within the 3-year duration. She then did her year-long postdoctoral studies at the University of Amsterdam, The Netherlands, and was also a Visiting Scholar at the Leibniz Institute for the Social Sciences, Germany. She is a UNESCO Inclusive Policy Lab Expert, Global Labor Organization Fellow, and European Commission Registered Expert. She also sits in the 2024-2026 Exco Committee of the Malaysian Economic Association. Her research and publication work straddles the realms of higher education, labour and migration economics. Using micro-econometric estimation analyses, her empirical work mostly addresses issues of policy implications pertaining to migrants’ labour market outcomes, and employment issues of university graduates. She has successfully led 2 FRGS projects totaling to approximately RM150,000 @ USD32,000, produced 3 intellectual properties, published in 8 Q1 and 4 Q2 SSCI/Scopus journals of which she led 9 of the papers as first author. She sits in the editorial board of an international Scopus journal (South Asian Journal of Business and Management Cases) and the Malaysian Management Journal. Due to her specific skill set in using a unique type of advanced econometric tool, she was invited to join a consultancy project commissioned by the Malaysian Ministry of Education to evaluate the impact of the Malaysian national early childhood education programme, i.e. the GENIUS programme. She is also a highly sought-after journal paper reviewer for top SSCI/Scopus journals in the field of economics published by reputable academic journal publishers.

  • Lim Hock Eam

    Lim Hock-Eam is a professor in Economics, Universiti Utara Malaysia. He obtains his master degree from University College London and PhD from Monash University. He involves actively in various research projects and publishes extensively in various local or international journal. His area of research interest includes labour economics, economics of happiness and applied micro-econometrics.

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Published

31-07-2025

Issue

Vol. 7 No. 2 (2025): JOURNAL OF ECONOMICS AND SUSTAINABILITY

Section

Articles

License

Copyright (c) 2025 Journal of Economics and Sustainability

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite

A CRITICAL REVIEW OF PRECAUTIONARY SAVINGS AND THEIR IMPLICATIONS FOR KEYNESIAN STIMULUS DURING COVID-19. (2025). Journal of Economics and Sustainability, 7(2), 1-18. https://doi.org/10.32890/jes2025.7.2.1