Precautionary savings in the great recession

Ashoka Mody, Franziska Ohnsorge, Damiano Sandri

Research output: Contribution to journalReview articlepeer-review

68 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)114-138
Number of pages25
JournalIMF Economic Review
Volume60
Issue number1
DOIs
StatePublished - Apr 2012
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • General Economics, Econometrics and Finance
  • General Business, Management and Accounting

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