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Savings and the terms of trade under borrowing constraints
By : Pierre-Richard Agenora, Joshua Aizenman, ELSEVIER (pagenor@worldbank.org (P.R. Age´nor).)
Created : 2010-06-10, with 1 files
Keyword : Savings,terms,trade,constraints
Url : http://www.elsevier.com/locate/econbase
This paper examines the extent to which permanent terms of trade shocks have an asymmetric effect on private savings. The first part uses a simple three-period model to show that, if households expect to face binding borrowing constraints in bad states of nature, savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of tradein contrast to what conventional consumption-smoothing models would predict. The second part tests for the existence of asymmetric effects of terms of trade disturbances while controlling for various standard determinants of private savings. The results, based on panel data for non-oil commodity exporters of sub-Saharan Africa for the period 19801996, indicate that periods of increases in the permanent component of the terms of trade tend indeed be sociated with higher rates of privatesavings.
2003 Published by Elsevier B.V.
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