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Private Saving and Terms of Trade Shocks

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Author Info
Reinhart, Carmen
Ostry, Jonathan

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Abstract

This paper examines the relationship between temporary terms of trade shocks and household saving in developing countries. It is first shown that, from a theoretical standpoint, this relationship is ambiguous: private saving may rise or fall in response to a transitory terms of trade shock, depending on the values of the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between traded and nontraded goods. Empirical estimates of these two parameters are obtained using data from a sample of 13 developing countries, and then used to draw implications for the response of private saving to transitory terms of trade shocks.

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File URL: http://mpra.ub.uni-muenchen.de/13716/
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 13716.

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Date of creation: Oct 1991
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Publication status: Published in IMF Staff Papers 39.3(1992): pp. 495-517
Handle: RePEc:pra:mprapa:13716

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Keywords: traded and nontraded goods consumption real interest rates current account;

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Find related papers by JEL classification:
F30 - International Economics - - International Finance - - - General
F10 - International Economics - - Trade - - - General
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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  1. Hall, Robert E, 1978. "Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 971-87, December. [Downloadable!] (restricted)
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  3. Robert E. Hall, 1988. "Intertemporal Substitution in Consumption," NBER Working Papers 0720, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February. [Downloadable!] (restricted)
    Other versions:
  5. Calvo, Guillermo A., 1987. "On the costs of temporary policy," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 245-261, October. [Downloadable!] (restricted)
  6. Hayashi, Fumio & Sims, Christopher A, 1983. "Nearly Efficient Estimation of Time Series Models with Predetermined, but Not Exogenous, Instruments," Econometrica, Econometric Society, vol. 51(3), pages 783-98, May. [Downloadable!] (restricted)
  7. Haque, Nadeem U & Montiel, Peter, 1989. "Consumption in Developing Countries: Tests for Liquidity Constraintsand Finite Horizons," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 408-15, August. [Downloadable!] (restricted)
  8. Nadeem Ul Haque & Peter Montiel, 1990. "Capital Mobility in Developing Countries - Some Empirical Tests," IMF Working Papers 90/117, International Monetary Fund.
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  9. Giovannini, Alberto, 1985. "Saving and the real interest rate in LDCs," Journal of Development Economics, Elsevier, vol. 18(2-3), pages 197-217, August. [Downloadable!] (restricted)
  10. Gavin, Michael, 1990. "Structural adjustment to a terms of trade disturbance : The role of relative prices," Journal of International Economics, Elsevier, vol. 28(3-4), pages 217-243, May. [Downloadable!] (restricted)
  11. Sachs, Jeffrey, 1982. " The Current Account in the Macroeconomic Adjustment Process," Scandinavian Journal of Economics, Blackwell Publishing, vol. 84(2), pages 147-59.
  12. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February. [Downloadable!] (restricted)
  13. Eckstein, Z. & Leiderman, L., 1991. "Seignorage and the Welfare Cost of Inflation; Evidence from an Intertemporal Model of Money and Consumption," Papers 7-91, Tel Aviv.
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  14. Arrau, Patricio, 1990. "Intertemporal substitution in a monetary framework : evidence from Chile and Mexico," Policy Research Working Paper Series 549, The World Bank. [Downloadable!]
  15. Cuddington, John T & Urzua, Carlos M, 1989. "Trends and Cycles in the Net Barter Terms of Trade: A New Approach," Economic Journal, Royal Economic Society, vol. 99(396), pages 426-42, June. [Downloadable!] (restricted)
  16. Stockman, A.C. & Tesar, L.L., 1990. "Tastes And Technology In A Two-Country Model Of The Business Cycle: Explaining International Comovements," University of California at Santa Barbara, Economics Working Paper Series 16-90, Department of Economics, UC Santa Barbara.
  17. Hansen, Lars Peter & Singleton, Kenneth J, 1982. "Generalized Instrumental Variables Estimation of Nonlinear Rational Expectations Models," Econometrica, Econometric Society, vol. 50(5), pages 1269-86, September. [Downloadable!] (restricted)
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