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Precautionary Savings in the Great Recession

Ashoka Mody, Damiano Sandri () and Franziska Ohnsorge

No 12/42, IMF Working Papers from International Monetary Fund

Abstract: Heightened uncertainty since the onset of the Great Recession has materially increased saving rates, contributing to lower consumption and GDP growth. Consistent with a model of precautionary savings in the face of uncertainty, we find for a panel of advanced economies that greater labor income uncertainty is significantly associated with higher household savings. These results are robust to controlling for other determinants of saving rates, including wealth-to-income ratios, the government fiscal balance, demographics, credit conditions, and global growth and financial stress. Our estimates imply that at least two-fifths of the sharp increase in household saving rates between 2007 and 2009 can be attributed to the precautionary savings motive.

Keywords: Economic recession; Economic models; Economic growth; Developed countries; Cross country analysis; Private consumption; Precautionary savings; uncertainty, Great Recession, unemployment, disposable income, unemployment rate, income growth, labor income, Economic Growth of Open Economies, (search for similar items in EconPapers)
Pages: 38
Date: 2012-02-01
New Economics Papers: this item is included in nep-mac
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Handle: RePEc:imf:imfwpa:12/42