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Private Saving and Terms of Trade Shocks

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  • Reinhart, Carmen
  • Ostry, Jonathan

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.

Suggested Citation

  • Reinhart, Carmen & Ostry, Jonathan, 1991. "Private Saving and Terms of Trade Shocks," MPRA Paper 13716, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:13716
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    References listed on IDEAS

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    More about this item

    Keywords

    traded and nontraded goods consumption real interest rates current account;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F10 - International Economics - - Trade - - - General
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

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