Savings and the Terms of Trade under Borrowing Constraints
The authors examine the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. Using a simple three-period model, they show that if households expect to face binding constraints on borrowing in bad states of n...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2000/06/437121/savings-terms-trade-under-borrowing-constraints http://hdl.handle.net/10986/19837 |
| Summary: | The authors examine the extent to which
permanent terms-of-trade shocks have an asymmetric effect on
private savings. Using a simple three-period model, they
show that if households expect to face binding constraints
on borrowing in bad states of nature (when the economy is in
a long trough rather than a sharp peak). Savings rates will
respond asymmetrically to favorable movements in the
permanent component of the terms of trade - in contrast with
the predictions of conventional consumption-smoothing
models. They test the asymmetric effects of terms-of-trade
disturbances using an econometric model that controls for
various standard determinants of private savings. The
results - based on panel data for non-oil commodity
exporters of Sub-Saharan Africa for 1980-96 (a group of
countries for which movements in the terms of trade have
traditionally represented a key source of macroeconomic
shocks) - indicate that increases in the permanent component
of the terms of trade (measured using three alternative
filtering techniques) indeed tend to be associated with
higher rates of private savings. |
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