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Oil Exporters' Dilemma: How Much to Save and How Much to Invest

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  • Reda Cherif
  • Fuad Hasanov

Abstract

Policymakers in oil-exporting countries confront the question of how to allocate oil revenues among consumption, saving, and investment in the face of high income volatility. We study this allocation problem in a precautionary saving and investment model under uncertainty. Consistent with data in the 2000s, precautionary saving is sizable and the marginal propensity to consume out of permanent shocks is below one, in stark contrast to the predictions of the perfect foresight model. The optimal investment rate is high if productivity in the tradable sector is high enough.

Suggested Citation

  • Reda Cherif & Fuad Hasanov, 2012. "Oil Exporters' Dilemma: How Much to Save and How Much to Invest," IMF Working Papers 2012/004, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2012/004
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    References listed on IDEAS

    as
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