After the Crisis: Lower Consumption Growth But Narrower Global Imbalances?

32 Pages Posted: 18 Jan 2010

See all articles by Ashoka Mody

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Franziska Ohnsorge

International Monetary Fund (IMF)

Date Written: Janurary 2010

Abstract

We estimate consumption dynamics in the G-7 economies, paying particular attention to the possibility of precautionary behavior in the face of uncertainty. We find that in the short run, continued income uncertainty will significantly dampen consumption growth. As such, consumption in the G-7 economies is unlikely to be the engine that revives global growth. Differences in the pace and timing of consumption moderation have implications for the evolution of global imbalances. With the U.S. experiencing a sharper rise in unemployment and, perhaps, more widespread loss of financial wealth than elsewhere in the G-7, the relative rise of the U.S. savings rate is helping narrow global imbalances. But with a likely earlier recovery in the U.S., this narrowing could be short-lived. Moreover, long-term differences- in economic and financial volatility and in demographic structures-have been an important source of the imbalances and could soon reassert their prominence.

Keywords: Aging, Business cycles, Consumption, Cross country analysis, Current account, Economic growth, Economic models, Economic recovery, Financial crisis, Global Financial Crisis 2008-2009, Group of seven, Private sector, Savings, Unemployment

Suggested Citation

Mody, Ashoka and Ohnsorge, Franziska, After the Crisis: Lower Consumption Growth But Narrower Global Imbalances? (Janurary 2010). IMF Working Papers, Vol. , pp. 1-32, 2010. Available at SSRN: https://ssrn.com/abstract=1537507

Ashoka Mody (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-9617 (Phone)
202-589-9617 (Fax)

HOME PAGE: http://www.amody.com

Franziska Ohnsorge

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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