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Saving and Terms of Trade Shocks: Evidence from Developing Countries

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  • Reinhart, Carmen
  • Ostry, Jonathan

Abstract

The relationship between temporary terms of trade shocks and household saving in developing countries is examined. 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 intra temporal 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, 1992. "Saving and Terms of Trade Shocks: Evidence from Developing Countries," MPRA Paper 6976, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:6976
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    More about this item

    Keywords

    saving; consumption; interteporal; preference parameters; term of trade;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F0 - International Economics - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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