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Do asymmetric terms of trade shocks affect private savings in a transition economy?

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  • Chowdhury, Abdur R.

    ()
    (BOFIT)

Abstract

This paper examines whether terms of trade shocks have an asymmetric effect on private savings in transition economies. A simple three-period framework is developed to show that, in the presence of binding credit constraints in bad states of nature, savings rates can be sensitive to favorable movements in the permanent component of the terms of trade. This result contrasts with the prediction of the conventional consumption-smoothing model. Empirical analysis with a dynamic panel model further confirms that while favorable movements in the permanent component of the terms of trade have an asymmetric effect on private savings, the magnitude of the effect is relatively small. The results are robust for alternative estimators, determinants, and country groupings.

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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 3/2003.

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Length: 35 pages
Date of creation: 19 Feb 2003
Date of revision:
Handle: RePEc:hhs:bofitp:2003_003

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Keywords: transition; private savings; terms of trade;

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References

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Cited by:
  1. Marit Hinnosaar & Hannes Kaadu & Lenno Uusküla, 2005. "Estimating the equilibrium exchange rate of the Estonian kroon," Bank of Estonia Working Papers 2005-2, Bank of Estonia, revised 10 Oct 2005.
  2. Piotr Misztal, 2010. "The Harberger-Laursen-Metzler Effect. Theory and Practice in Poland," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 13(38), pages 129-146, December.

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