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Precautionary Savings in the Great Recession

Author/Editor: Mody, Ashoka | Ohnsorge, Franziska | Sandri, Damiano
Authorized for Distribution: February 1, 2012
Electronic Access: Free Full Text (PDF file size is 614KB)
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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: 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.
 
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Series: Working Paper No. 12/42
Subject(s): Cross country analysis | Developed countries | Economic growth | Economic models | Economic recession | Private consumption | Savings
Author's keyword(s): Precautionary savings | uncertainty | Great Recession
 
English  
    Published:   February 1, 2012        
            Format:   Paper
    Stock No:   WPIEA2012042   Pages:   37
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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