The Rich and the Great Recession

Bas Bakker and Joshua Felman

No 2014/225, IMF Working Papers from International Monetary Fund

Abstract: Most papers explaining the macro causes of the U.S. Great Recession focus on the behavior of the middle class: how its saving rate declined in the pre-crisis years, then surged following the crisis. This paper argues that the saving rate of the rich followed a similar pattern, the result of wealth effects associated with a boom-bust in asset prices. Indeed, the swings in saving by the rich must actually have played the most important role in the consumption boom-bust, since since the top 10 percent account for almost half of income and two-thirds of wealth. In other words, the rich played a critical role in the Great Recession.

Keywords: WP; saving rate; rate; saving; Income inequality; wealth inequality; wealth; business cycles; consumption; income share; saving data; saving-investment curve; wealth effect; consumption function; middle class saving; saving rise; decline in the saving rate; Income; Disposable income; Income distribution; Global (search for similar items in EconPapers)
Pages: 36
Date: 2014-12-16
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Citations: View citations in EconPapers (3)

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