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Precautionary Savings in the Great Recession

Ashoka Mody, Damiano Sandri and Franziska Ohnsorge

No 2012/042, 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: WP; saving rate; rate; saving; Precautionary savings; uncertainty; Great Recession; household savings; replacement rate; T-bill rate; investment risk; rate to a series; saving literature; response of the saving rate; unemployment insurance replacement rate; rate of return; evolution of savings rate; unemployment risk; Income; Disposable income; Unemployment rate; Consumption; Global (search for similar items in EconPapers)
Pages: 38
Date: 2012-02-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (101)

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