Precautionary Savings in the Great Recession
- 209 Downloads
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.
JEL ClassificationsE12 E32 F32 F43
- Bloom, Nicholas, Max Floetotto, Nir Jaimovich, Itay Saporta-Eksten, and Stephen Terry, 2011, “Really Uncertain Business Cycles,” mimeo, available via the internet: http://www.stanford.edu/~nbloom/RUBC_DRAFT.pdf.
- Caballero, Ricardo J., 1991, “Earnings Uncertainty and Aggregate Wealth Accumulation,” American Economic Review, Vol. 81, pp. 859–871.Google Scholar
- Carroll, Christopher D., 1992, “The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence,” Brookings Papers on Economic Activity, Vol. 2, pp. 62–156.Google Scholar
- Carroll, Christopher D., and Jiri Slacalek, 2009, The American Consumer: Reforming, or Just Resting?, Available via the Internet: www.econ.jhu.edu/people/ccarroll/papers/ReformingOrResting.pdf.
- Carroll, Christopher D., Jiri Slacalek, and Martin Sommer, 2012, “Dissecting Saving Dynamics: Measuring Credit, Uncertainty, and Wealth Effects,” mimeo, available via the internet: http://www.econ2.jhu.edu/people/ccarroll/papers/cssUSSaving.pdf.
- Eichengreen, Barry, and Kevin O'Rourke, 2010, “What Do the New Data Tell Us?,” VoxEU.org. Available via the Internet: www.voxeu.org/index.php?q=node/3421.
- Giavazzi, Francesco, and Michael McMahon, 2012, “Policy Uncertainty and Household Savings,” The Review of Economics and Statistics, forthcoming.Google Scholar
- Krugman, Paul, 2011, Are Other Commodities Like Gold?, Available via the Internet: www.krugman.blogs.nytimes.com/2011/09/07/are-other-commodities-like-gold-quick-and-wonkish/.