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What Drives Consumption Booms?

  • Peter Montiel

Consumption booms have been common in both industrial and developing countries, and several explanations have been offered for their occurrence. These include economy-wide wealth effects associated with favorable movements in the terms of trade or euphoric expectations triggered by macroeconomic reforms, Ricardian effects associated with fiscal stabilization, lending booms following financial liberalization, and a variety of distortions in intertemporal relative prices. Using a large cross-country sample of booms, this article assesses how widely applicable these explanations are. The key finding is that wealth effects linked to favorable movements in the terms of trade and anticipated improvements in macroeconomic performance seem to have been more important empirically than explanations relying primarily on fiscal phenomena or distortions in intertemporal relative prices. Copyright The Author 2000. Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / the world bank . All rights reserved. For permissions, please e-mail:, Oxford University Press.

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Article provided by World Bank Group in its journal The World Bank Economic Review.

Volume (Year): 14 (2000)
Issue (Month): 3 (September)
Pages: 457-480

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Handle: RePEc:oup:wbecrv:v:14:y:2000:i:3:p:457-480
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