IDEAS home Printed from https://ideas.repec.org/p/bdr/borrec/061.html
   My bibliography  Save this paper

The Fall in Colombian Savings During the 1990s. Theory and Evidence

Author

Listed:
  • Juan Carlos Echeverry

Abstract

This After 1991 Colombia witnessed a sharp fall in the national savings rate (see figure 1.1), and in particular that of the private sector. Two hypotheses have been advanced for explaining this behavior. The first one stresses consumption smoothing within the Perrnanent Income Hypothesis framework (PIH). The reasons for such smoothing can be related with three major phenomena that characterized this period; namely, i. Since 1990 the government pursued an "apertura" (opening), consisting of tariff reductions, which the agents may have deemed as non-credible (transitory); hence, they exploited the advantage of purchasing imported goods at current low prices, expecting future rises in tariffs. ii. The agents believed in the apertura, but an overshooting of capital inflows led to an overvalued exchange rate, which, they expected, should be corrected at some point in the near future, with similar effects on current imports consumption. A similar effect on the real interest rate has been also claimed to have similar effects on total consumption (see Lopes et al, 1996). And iii. a predictable increase in income originated in fairly secure and substancial oil exports starting in 1997; this could lead oil exports revenues from $ 1.4 bn. yearly in 1991 (approximately 42% of total exports), to $ 4bn. after 1997. Such expected rise in income would have caused the observed increase in consumption. The second hypothesis is based on the relaxation of liquidity constraints (LCH), as a result of the capital inflows. Urrutia and Lopez (1994) argue that the increase in consumption was due to a relaxation in the liquidity constraints binding on an important share of the population (75% according to them). The inflow of capital experienced in the first years of the 1990s, and the monetary policy of that period would have allowed an increase in outstanding loans directed to consumption purposes. Cárdenas (1996) and Sánchez (1996) also present evidence in support of this hypoth
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Juan Carlos Echeverry, 1996. "The Fall in Colombian Savings During the 1990s. Theory and Evidence," Borradores de Economia 061, Banco de la Republica de Colombia.
    • Handle: RePEc:bdr:borrec:061
    DOI: 10.32468/be.61
    as

    Download full text from publisher

    File URL: https://doi.org/10.32468/be.61
    Download Restriction: no
    File URL: https://libkey.io/10.32468/be.61?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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 971-987, December.
    2. Chah, Eun Young & Ramey, Valerie A & Starr, Ross M, 1995. "Liquidity Constraints and Intertemporal Consumer Optimization: Theory and Evidence from Durable Goods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(1), pages 272-287, February.
    3. Reinhart, Carmen & Ostry, Jonathan, 1995. "El ahorro y 1a tasa de interes real en los paises en desarrollo [Saving and the Real Interest Rate in Developing Countries]," MPRA Paper 13733, University Library of Munich, Germany.
    4. Guillermo Calvo & Carmen Reinhart & Carlos Végh, 1994. "La tasa de cambio real como meta de política: teoría y evidencia," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 13(25), pages 7-50, June.
    5. Alejandro Gaviria, 1993. "El ahorro privado y los términos de intercambio: el caso colombiano," Revista ESPE - Ensayos sobre Política Económica, Banco de la Republica de Colombia, vol. 12(23), pages 37-54, June.
    6. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    7. Gonzales Arrieta, Gerardo M., 1988. "Interest rates, savings, and growth in LDCs: An assessment of recent empirical research," World Development, Elsevier, vol. 16(5), pages 589-605, May.
    8. Calvo, Guillermo A., 1983. "Staggered prices in a utility-maximizing framework," Journal of Monetary Economics, Elsevier, vol. 12(3), pages 383-398, September.
    9. Deaton, A., 1989. "Saving in Developing Contries: Theory and Review," Papers 144, Princeton, Woodrow Wilson School - Development Studies.
    10. Mr. Guillermo Calvo & Mr. Carlos A. Végh Gramont, 1990. "Credibility and the Dynamics of Stabilization Policy: A Basic Framework," IMF Working Papers 1990/110, International Monetary Fund.
    11. Calvo, Guillermo A. & Vegh, Carlos A., 1994. "Stabilization dynamics and backward-looking contracts," Journal of Development Economics, Elsevier, vol. 43(1), pages 59-84, February.
    12. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    13. Laurence J. Kotlikoff, 1989. "What Determines Savings?," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262611872, December.
    14. Atish R. Ghosh & Jonathan D. Ostry, 1994. "Export Instability and the External Balance in Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 214-235, June.
    15. Alejandro López & Martha Misas & Hugo Oliveros, 1996. "Understanding Consumption in Colombia," Borradores de Economia 058, Banco de la Republica de Colombia.
    16. Jonathan D. Ostry, 1988. "The Balance of Trade, Terms of Trade, and Real Exchange Rate: An Intertemporal Optimizing Framework," IMF Staff Papers, Palgrave Macmillan, vol. 35(4), pages 541-573, December.
    17. 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.
    18. Mr. Guillermo Calvo & Mr. Carlos A. Végh Gramont, 1990. "Interest Rate Targeting in a Small Open Economy: The Predetermined Exchange Rates Case," IMF Working Papers 1990/021, International Monetary Fund.
    19. Sebastian Edwards, 1995. "Why are Saving Rates so Different Across Countries?: An International Comparative Analysis," NBER Working Papers 5097, National Bureau of Economic Research, Inc.
    20. N. Gregory Mankiw & Julio J. Rotemberg & Lawrence H. Summers, 1985. "Intertemporal Substitution in Macroeconomics," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(1), pages 225-251.
    21. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
    22. Masao Ogaki & Jonathan D. Ostry & Carmen M. Reinhart, 1996. "Saving Behavior in Low- and Middle-Income Developing Countries: A Comparison," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 38-71, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Luis Fernando Melo & Franz A.Hamann, 1998. "Inflación Básica.Una Estimación Basada en Modelos VAR Estructurales," Borradores de Economia 093, Banco de la Republica de Colombia.
    2. Cardenas, Mauricio & Barrera, Felipe, 1997. "On the effectiveness of capital controls: The experience of Colombia during the 1990s," Journal of Development Economics, Elsevier, vol. 54(1), pages 27-57, October.
    3. Bande, Roberto & Riveiro, Dolores & Ruiz, Freddy, 2021. "Does Uncertainty Affect Saving Decisions of Colombian Households? Evidence on Precautionary Saving," MPRA Paper 106771, University Library of Munich, Germany.
    4. Guataqui, Juan Carlos & García-Suaza, Andrés Felipe & Rodríguez-Acosta, Mauricio, 2009. "Ahorro para el retiro en Colombia: patrones y determinantes," Documentos de Trabajo 5792, Universidad del Rosario.
    5. Cardenas, Mauricio & Escobar, Andres, 1998. "Saving determinants in Colombia: 1925-1994," Journal of Development Economics, Elsevier, vol. 57(1), pages 5-44, October.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Juan Carlos Echeverry G., 1996. "Short Run Savings Fluctuations And Export Shocks.Theory And Evidence For Latin-America," Borradores de Economia 3498, Banco de la Republica.
    2. Luis Zambrano Sequín & Matías Riutort & Rafael Muñoz & Juan Carlos Guevara, 1998. "El ahorro privado en Venezuela: Tendencias y determinantes," Research Department Publications 3021, Inter-American Development Bank, Research Department.
    3. Norman Loayza & Klaus Schmidt-Hebbel & Luis Servén, 2001. "Una Revisión del COmportamiento y de los determinantes del ahorro en el mundo," Central Banking, Analysis, and Economic Policies Book Series, in: Felipe Morandé & Rodrigo Vergara & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Edit (ed.),Análisis Empírico del Ahorro en Chile, edition 1, volume 1, chapter 2, pages 13-48, Central Bank of Chile.
    4. Nicholas Odhiambo, 2010. "Interest rate reforms, financial deepening and economic growth in Tanzania: a dynamic linkage," Journal of Economic Policy Reform, Taylor and Francis Journals, vol. 13(2), pages 201-212.
    5. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.
    6. Agenor, Pierre-Richard & Aizenman, Joshua, 2004. "Savings and the terms of trade under borrowing constraints," Journal of International Economics, Elsevier, vol. 63(2), pages 321-340, July.
    7. Ana María Iregui & Ligia Alba Melo B., 2009. "La transmisión de la política monetaria sobre el consumo en presencia de restricciones de liquidez," Borradores de Economia 5254, Banco de la Republica.
    8. Carlos Esteban Posada P., 1995. "Ahorro Y Modelos Macroeconómicos," Borradores de Economia 1956, Banco de la Republica.
    9. Ndanshau, Michael O. A. & Kilindo, Ali A. L., 2012. "Interest Rates and Financial Savings in Tanzania: 1967 - 2010," MPRA Paper 44387, University Library of Munich, Germany, revised Jan 2013.
    10. Nola Reinhardt, "undated". "Saving Rates in Latin American: Why Reformers Got It Wrong," Working Papers 2007-01, Smith College, Department of Economics.
    11. Mr. Christian Thimann & Mrs. Anuradha Dayal-Gulati, 1997. "Saving in Southeast Asia and Latin America Compared: Searching for Policy Lessons," IMF Working Papers 1997/110, International Monetary Fund.
    12. Jonathan Temple & Huikang Ying & Patrick Carter, 2014. "Transfers and Transformations: Remittances, Foreign Aid, and Growth," Bristol Economics Discussion Papers 14/649, School of Economics, University of Bristol, UK, revised 02 Dec 2014.
    13. Cevdet Denizer & Holger C. Wolf, 1998. "Household Savings in Transition Economies," NBER Working Papers 6457, National Bureau of Economic Research, Inc.
    14. Martha Misas & Carlos Esteban Posada, 1997. "Determinantes De La Tasa De Ahorro: Una Perspectiva Internacional," Borradores de Economia 2310, Banco de la Republica.
    15. Carmen M. Reinhart, 1995. "Devaluation, Relative Prices, and International Trade: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 42(2), pages 290-312, June.
    16. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799, Elsevier.
    17. Lanteri, Luis N., 2001. "Choques externos y reasignación sectorial de recursos. Evidencia para la economía argentina," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(271), pages 369-403, julio-sep.
    18. Johansson, Sara, 1998. "Life cycles, oil cycles, or financial reforms? The growth in private savings rates in Indonesia," World Development, Elsevier, vol. 26(1), pages 111-124, January.
    19. Johansson, Sara, 1996. "Life cycles, oil cycles, or financial reforms? The growth in private savings rates in Indonesia," SSE/EFI Working Paper Series in Economics and Finance 150, Stockholm School of Economics.
    20. Reinhart, Carmen M. & Talvi, Ernesto, 1998. "Capital flows and saving in Latin America and Asia: a reinterpretation," Journal of Development Economics, Elsevier, vol. 57(1), pages 45-66, October.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdr:borrec:061. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Clorith Angélica Bahos Olivera (email available below). General contact details of provider: https://edirc.repec.org/data/brcgvco.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.