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Government Spending, the Real Interest Rate, and the Behavior of Liquidity-Constrained Consumers in Developing Countries

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  • Nicola Rossi

    (International Monetary Fund)

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    Abstract

    Empirical evidence on the deeterminants of private saving in 49 developing countries over the period 1973-83 indicates that, as predicted by theory, a positive relationship exists between the rate of growth of consumption and the expected real interest rate. The strength of that relatioship, how-ever, is such that increases in the real rate of return are not likely to elicit substantial increases in savings, especially in low-income developing countries. It appears that consumer behavior in developing countries is dominated by pervasive liquidity constraints that are exploitable for policy purposes.

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    Bibliographic Info

    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 35 (1988)
    Issue (Month): 1 (March)
    Pages: 104-140

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    Handle: RePEc:pal:imfstp:v:35:y:1988:i:1:p:104-140

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    Cited by:
    1. Reinhart, Carmen M. & Vegh, Carlos A., 1995. "Nominal interest rates, consumption booms, and lack of credibility: A quantitative examination," Journal of Development Economics, Elsevier, vol. 46(2), pages 357-378, April.
    2. Reinhart, Carmen & Talvi, Ernesto, 1998. "Capital flows and saving in Latin America and Asia: A reinterpretation," MPRA Paper 13704, University Library of Munich, Germany.
    3. Carmen Reinhart, 1990. "Fiscal Policy, the Real Exchange Rate and Commodity Prices," IMF Working Papers 90/91, International Monetary Fund.
    4. Buffie, Edward F., 1999. "Optimal trade liberalization and the welfare costs of imperfect credibility," Journal of International Economics, Elsevier, vol. 47(2), pages 371-398, April.
    5. Reinhart, Carmen, 1990. "Fiscal policy, the real exchange rate and commodity prices: A global framework," MPRA Paper 14102, University Library of Munich, Germany.
    6. Firdu Gmech, 2006. "The Mckinnon-Shaw Hypothesis: Thirty Years on:A Review of Recent Developments in Financial Liberalization Theory," Working Papers id:537, eSocialSciences.
    7. Philip R. Gerson, 1998. "The Impact of Fiscal Policy Variables on Output Growth," IMF Working Papers 98/1, International Monetary Fund.
    8. John Baffore-Bonnie & Mohammed Khayum, 1997. "Economic Development, Life-Cycle Consumption and Planning Hirizon," International Economic Journal, Taylor & Francis Journals, vol. 11(4), pages 17-37.
    9. Senhadji, Abdelhak S., 1998. "Dynamics of the trade balance and the terms of trade in LDCs: The S-curve," Journal of International Economics, Elsevier, vol. 46(1), pages 105-131, October.
    10. Luis Zambrano Sequín & Matías Riutort & Rafael Muñoz & Juan Carlos Guevara, 1998. "El ahorro privado en Venezuela: Tendencias y determinantes," Research Department Publications 3021, Inter-American Development Bank, Research Department.
    11. Hatzinikolaou, Dimitris, 1997. "Government spending, taxation of interest, and private saving: An empirical analysis using Greek aggregate data," Journal of Development Economics, Elsevier, vol. 52(2), pages 317-330, April.
    12. Reinhart, Carmen & Ostry, Jonathan, 1991. "Private Saving and Terms of Trade Shocks," MPRA Paper 13716, University Library of Munich, Germany.
    13. Reinhart, Carmen & Vegh, Carlos, 1994. "Inflation stabilization in chronic inflation countries: The empirical evidence," MPRA Paper 13689, University Library of Munich, Germany.
    14. Baharumshah, Ahmad Zubaidi & Thanoon, Marwan A. & Rashid, Salim, 2003. "Saving dynamics in the Asian countries," Journal of Asian Economics, Elsevier, vol. 13(6), pages 827-845, January.
    15. Buffie, Edward F. & Won, Yongkul, 2001. "Devaluation and investment in an optimizing model of the small open economy," European Economic Review, Elsevier, vol. 45(8), pages 1461-1499, August.
    16. Rajendra Prasad Shrestha Ph. D., 2008. "Private Savings Behaviour in Nepal: Long-term Determinants and Short-run Dynamics," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 20, pages 16-31, April.
    17. Reinhart, Carmen & Vegh, Carlos, 1994. "Intertemporal consumption substitution and inflation stabilization:An empirical investigation," MPRA Paper 13427, University Library of Munich, Germany.

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