Precautionary Savings in the Great Recession
February 1, 2012
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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
Pages:
38
Volume:
2012
DOI:
Issue:
042
Series:
Working Paper No. 2012/042
Stock No:
WPIEA2012042
ISBN:
9781463936433
ISSN:
1018-5941
