Precautionary Savings in the Great Recession by Ashoka Mody, Franziska Ohnsorge, Damiano Sandri published by IMF (2/2012).
“A feature of the Great Recession has been a striking increase in uncertainty. This new environment stands in marked contrast to the immediately preceding years of apparent tranquility, often characterized as the Great Moderation. The transition was marked by the initially innocuous subprime tremors in the U.S. markets in mid-2007, which were followed in late 2008 and early 2009 by an existential threat to the global financial system. Along with financial market tensions, world production and trade fell precipitously at rates exceeding that of the Great Depression (Eichengreen and O’Rourke, 2010). Not only did economic activity decline, the pace of decline was characterized by a high degree of uncertainty. Starting in late 2008, the uncertainties were reflected in repeated and sizeable downward revisions of growth projections (Figure 1). Although economic recovery was widespread in 2010, new concerns—associated with financial and sovereign stresses in Europe but extending to encompass global production and trade—have once again created an uncertain outlook, with a new round of downward growth revisions for 2012. Heightened uncertainty has become the new normal…”
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