IMF Working Papers

Precautionary Savings in the Great Recession

By Ashoka Mody, Damiano Sandri, Franziska L Ohnsorge

February 1, 2012

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Ashoka Mody, Damiano Sandri, and Franziska L Ohnsorge. Precautionary Savings in the Great Recession, (USA: International Monetary Fund, 2012) accessed November 8, 2024
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.

Subject: Consumption, Disposable income, Income, Labor, National accounts, Precautionary savings, Unemployment rate

Keywords: Consumption, Disposable income, Evolution of savings rate, Global, Great Recession, Household savings, Income, Investment risk, Precautionary savings, Rate, Rate of return, Rate to a series, Replacement rate, Response of the saving rate, Saving, Saving literature, Saving rate, T-bill rate, Uncertainty, Unemployment insurance replacement rate, Unemployment rate, Unemployment risk, WP

Publication Details

  • Pages:

    38

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2012/042

  • Stock No:

    WPIEA2012042

  • ISBN:

    9781463936433

  • ISSN:

    1018-5941

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