After the Crisis: Lower Consumption Growth But Narrower Global Imbalances?

Franziska Ohnsorge and Ashoka Mody

No 2010/011, IMF Working Papers from International Monetary Fund

Abstract: We estimate consumption dynamics in the G-7 economies, paying particular attention to the possibility of precautionary behavior in the face of uncertainty. We find that in the short run, continued income uncertainty will significantly dampen consumption growth. As such, consumption in the G-7 economies is unlikely to be the engine that revives global growth. Differences in the pace and timing of consumption moderation have implications for the evolution of global imbalances. With the U.S. experiencing a sharper rise in unemployment and, perhaps, more widespread loss of financial wealth than elsewhere in the G-7, the relative rise of the U.S. savings rate is helping narrow global imbalances. But with a likely earlier recovery in the U.S., this narrowing could be short-lived. Moreover, long-term differences- in economic and financial volatility and in demographic structures-have been an important source of the imbalances and could soon reassert their prominence.

Keywords: WP; consumption growth; stock market volatility; growth function; Lagged consumption; savings rate; consumption; savings; business cycles; current account adjustment; consumption behavior; consumption response; Disposable income; Stock markets; Income; Stocks; Global (search for similar items in EconPapers)
Pages: 32
Date: 2010-01-01
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Citations: View citations in EconPapers (12)

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