Precautionary Savings in the Great Recession

38 Pages Posted: 28 Feb 2012

See all articles by Ashoka Mody

Ashoka Mody

International Monetary Fund (IMF) - Research Department

Franziska Ohnsorge

International Monetary Fund (IMF)

Damiano Sandri

International Monetary Fund (IMF) - Research Department

Date Written: February 2012

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, 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.

Keywords: Precautionary Savings, Uncertainty, Great Recession, Developed Countries, Economic Growth, Economic Models, Economic Recession, Private Consumption

JEL Classification: E12, E32, F32, F43

Suggested Citation

Mody, Ashoka and Ohnsorge, Franziska and Sandri, Damiano, Precautionary Savings in the Great Recession (February 2012). IMF Working Paper No. NO.12/42. Available at SSRN: https://ssrn.com/abstract=2012227

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

Damiano Sandri

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

700 19th Street NW
Washington, DC 20431
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
58
Abstract Views
587
rank
379,874
PlumX Metrics