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  • Alun H. Thomas
  • Tamim Bayoumi

Abstract

This paper applies the Permanent Income Model to the non-oil current accounts of the major oil exporters to assess the extent to which national consumption decisions in these countries are made on the basis of permanent versus current income. A test of whether the return on oil wealth and oil balance coefficients sum to unity is accepted for all specifications that adjust the return on wealth for future population changes. For oil-exporting countries outside Africa, around half of the fluctuations in the private sector non-oil balance are driven by considerations of changes in permanent income (the return on oil wealth) rather than current income. By contrast, for the public sector and African countries permanent income has little or no effect.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/248.

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Length: 17
Date of creation: 01 Nov 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/248

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Related research

Keywords: Economic models; National income; Nonoil sector; Oil exporting countries; Oil prices; Oil revenues; current account; permanent income; current income; consumption decisions; permanent income model; budget balance; current account balance; current accounts; real interest rate; marginal propensity to consume; consumption smoothing; domestic absorption; current account deficits; permanent income hypothesis; the marginal propensity to consume; aggregate consumption; consumption models; consumption per capita; intertemporal consumption; current account balances; current account surpluses; consumption effects;

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References

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  1. Alonso Segura, 2006. "Management of Oil Wealth Under the Permanent Income Hypothesis," IMF Working Papers 06/183, International Monetary Fund.
  2. Tamim Bayoumi & Michael W. Klein, 1997. "A Provincial View of Economic Integration," IMF Staff Papers, Palgrave Macmillan, vol. 44(4), pages 534-556, December.
  3. Calderon, Cesar & Chong, Alberto & Loayza, Norman, 2000. "Determinants of current account deficits in developing countries," Policy Research Working Paper Series 2398, The World Bank.
  4. Pierfederico Asdrubali & Soyoung Kim, 2008. "Incomplete Intertemporal Consumption Smoothing and Incomplete Risk Sharing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 40(7), pages 1521-1531, October.
  5. Alun H. Thomas & Jun Il Kim & Aqib Aslam, 2008. "Equilibrium Non-Oil Current Account Assessments for Oil Producing Countries," IMF Working Papers 08/198, International Monetary Fund.
  6. Silvia Sgherri & Tamim Bayoumi, 2006. "Mr. Ricardo's Great Adventure," IMF Working Papers 06/168, International Monetary Fund.
  7. John Y. Campbell & N. Gregory Mankiw, 1991. "Permanent Income, Current Income, and Consumption," NBER Working Papers 2436, National Bureau of Economic Research, Inc.
  8. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
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Cited by:
  1. Reda Cherif & Fuad Hasanov, 2012. "Oil Exporters' Dilemma: How Much to Save and How Much to Invest," IMF Working Papers 12/4, International Monetary Fund.

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