Precautionary Savings in the Great Recession
IMF Working Papers, February 1, 2012
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Bibliographic details
- Authors: Ashoka Mody, Damiano Sandri, Franziska L Ohnsorge
- Published: February 1, 2012
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781463936433.001
Key findings
- Heightened uncertainty since the onset of the Great Recession has materially increased saving rates, contributing to lower consumption and GDP growth.
- For a panel of advanced economies, greater labor income uncertainty is significantly associated with higher household savings.
- 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.
- The 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.
Empirical approach and robustness
- Analysis consistent with a model of precautionary savings in the face of uncertainty.
- Panel data of advanced economies used to link labor income uncertainty to household saving behavior.
- Robustness checks include controls for:
- wealth-to-income ratios
- the government fiscal balance
- demographics
- credit conditions
- global growth and financial stress
Quantitative estimates and scope
- Timeframe highlighted: the sharp increase in household saving rates between 2007 and 2009.
- Attribution estimate: at least two-fifths of that increase is due to precautionary savings.
- Study format: IMF Working Paper.
Policy implications
- Elevated uncertainty can materially raise household saving rates, which dampens consumption and GDP growth.
- Policies that reduce labor income uncertainty or mitigate its perceived risk (for example, measures strengthening income insurance, labor market stability, or credit access) could help limit precautionary increases in saving and support aggregate demand.
- Consideration of fiscal and financial conditions is important given the role of government fiscal balance, credit conditions, and global financial stress in the empirical analysis.
Authors: Ashoka Mody, Damiano Sandri, Franziska L Ohnsorge — February 1, 2012. Publication: IMF Working Papers. Placeholder for canonical landing page content.
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