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Current Account and Precautionary Savings for Exporters of Exhaustible Resources

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Author Info
Irineu E. Carvalho Filho
Rudolfs Bems

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Abstract

Exporters of exhaustible resources have historically exhibited higher income volatility than other economies, suggesting a heightened role for precautionary savings. This paper uses a parameterized small open economy model to quantify the role of precautionary savings in economies with exhaustible resources, when the only source of uncertainty is the price of the exhaustible resource. Results show that the precautionary motive can generate sizable external sector savings. When aggregated over the sample countries, precautionary savings in 2006 add up to 3.2 percent of GDP. The quantitative importance of the precautionary motive varies considerably across the sample countries and is driven primarily by the weight of exhaustible resource revenues in future income. The parameterized model fares well at capturing current account balances in both cross-section and time-series data.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 09/33.

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Length: 38 pages
Date of creation: 10 Mar 2009
Date of revision:
Handle: RePEc:imf:imfwpa:09/33

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Related research
Keywords: Export sector ; Developed countries ; Developing countries ; Current account ; Exports ; Savings ; Income ; External sector ; Economic models ; Cross country analysis ;

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  1. Caballero, Ricardo J., 1990. "Consumption puzzles and precautionary savings," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 113-136, January. [Downloadable!] (restricted)
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  2. Christopher D. Carroll, 2001. "A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version)," NBER Working Papers 8387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  3. Alessandra Fogli & Fabrizio Perri, 2006. "The "Great Moderation" and the US External Imbalance," NBER Working Papers 12708, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December. [Downloadable!] (restricted)
  5. Schmitt-Grohe, Stephanie & Uribe, Martin, 2003. "Closing small open economy models," Journal of International Economics, Elsevier, vol. 61(1), pages 163-185, October. [Downloadable!] (restricted)
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  6. Cynthia Lin, C.-Y. & Wagner, Gernot, 2007. "Steady-state growth in a Hotelling model of resource extraction," Journal of Environmental Economics and Management, Elsevier, vol. 54(1), pages 68-83, July. [Downloadable!] (restricted)
  7. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May. [Downloadable!] (restricted)
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