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

Author/Editor: Ohnsorge, Franziska | Mody, Ashoka
Authorized for Distribution: January 1, 2010
Electronic Access: Free Full Text (PDF file size is 921KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: 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.
 
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Series: Working Paper No. 10/11
Subject(s): Savings | Aging | Economic growth | Economic models | Economic recovery | Global Financial Crisis 2008-2009 | Group of seven | Unemployment
Author's keyword(s): consumption | savings | business cycles | current account adjustment
 
English  
    Published:   January 1, 2010        
    ISBN/ISSN:   9781451961966   Format:   Paper
    Stock No:   WPIEA2010011   Pages:   25
    Price:   US$18.00
       
     
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