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Precautionary Savings in the Great Recession

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  • Ashoka Mody
  • Franziska Ohnsorge
  • Damiano Sandri

Abstract

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, the paper finds 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. 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.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal IMF Economic Review.

Volume (Year): 60 (2012)
Issue (Month): 1 (April)
Pages: 114-138

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Handle: RePEc:pal:imfecr:v:60:y:2012:i:1:p:114-138

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References

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  1. Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
  2. Slacalek, Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," Working Paper Series 1117, European Central Bank.
  3. Francesco Giavazzi & Michael McMahon, 2012. "Policy Uncertainty and Household Savings," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 517-531, May.
  4. Salant, Stephen W & Henderson, Dale W, 1978. "Market Anticipations of Government Policies and the Price of Gold," Journal of Political Economy, University of Chicago Press, vol. 86(4), pages 627-48, August.
  5. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  6. Bayoumi, Tamim & Masson, Paul R & Samiei, Hossein, 1996. "International Evidence on the Determinants of Saving," CEPR Discussion Papers 1368, C.E.P.R. Discussion Papers.
  7. Edwards, Sebastian, 1996. "Why are Latin America's savings rates so low? An international comparative analysis," Journal of Development Economics, Elsevier, vol. 51(1), pages 5-44, October.
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Citations

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Cited by:
  1. Fornaro, Luca, 2013. "International Debt Deleveraging," Working Papers 182, Oesterreichische Nationalbank (Austrian Central Bank).
  2. Mundra, Kusum & Uwaifo Oyelere, Ruth, 2013. "Determinants of Immigrant Homeownership: Examining their Changing Role during the Great Recession and Beyond," IZA Discussion Papers 7468, Institute for the Study of Labor (IZA).
  3. Joshua Aizenman & Ilan Noy, 2013. "Public and Private Saving and the Long Shadow of Macroeconomic Shocks," NBER Working Papers 19067, National Bureau of Economic Research, Inc.
  4. Barbara Liberda & Marek Pęczkowski, 2012. "Polarization of household saving in Poland during financial crisis 2007-2010," Working Papers 2012-19, Faculty of Economic Sciences, University of Warsaw.
  5. Christopher Carroll & Martin Sommer & Jiri Slacalek, 2012. "Dissecting Saving Dynamics: Measuring Wealth, Precautionary, and Credit Effects," IMF Working Papers 12/219, International Monetary Fund.
  6. Roberto Bande & Dolores Riveiro, 2013. "The Consumption-Investment-Unemployment Relationship In Spain: An Analysis With Regional Data," Theoretical and Practical Research in Economic Fields, ASERS Publishing, vol. 0(1), pages 5-24, July.
  7. Bande, Roberto & Riveiro, Dolores, 2012. "Private Saving Rates and Macroeconomic Uncertainty: Evidence from Spanish Regional Data," MPRA Paper 42647, University Library of Munich, Germany.
  8. Aizenman, Joshua & Noy, Ilan, 2012. "Macroeconomic adjustment and the history of crises in open economies," Working Paper Series 2516, Victoria University of Wellington, School of Economics and Finance.
  9. Sule Alan & Thomas Crossley & Hamish Low, 2012. "Saving on a rainy day, borrowing for a rainy day," IFS Working Papers W12/11, Institute for Fiscal Studies.
  10. Barbara Liberda & Marek Pęczkowski, 2007. "Households'� Saving Mobility in Poland," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 17.
  11. Fessler, Pirmin & Schürz, Martin & Andreasch, Michael, 2012. "Savings Deposits in Austria – A Safety Net in Times of Crisis," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 2, pages 81–95.

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