After the Crisis

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.Savings;Aging;Economic growth;Economic models;Economic recovery;Global Financial Crisis 2008-2009;Group of seven;Unemployment;consumption, business cycles, current account adjustment, consumption growth, disposable income, household wealth, income growth, private consumption, national savings, dependent variable, demographic factors, reduction in consumption, real returns, distribution of income, permanent income, consumption behavior, level of consumption, real interest rate, income effect, demand for consumption, consumer price index, demographic structure, implications for consumption, permanent income hypothesis, future consumption, consumption goods, consumption function, consumer behavior, social security, labor income, future consumption growth, personal consumption