Publication: Savings and the Terms of Trade under Borrowing Constraints
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2000-06
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2014-08-28
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The authors examine the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. Using a simple three-period model, they show that if households expect to face binding constraints on borrowing in bad states of nature (when the economy is in a long trough rather than a sharp peak). Savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade - in contrast with the predictions of conventional consumption-smoothing models. They test the asymmetric effects of terms-of-trade disturbances using an econometric model that controls for various standard determinants of private savings. The results - based on panel data for non-oil commodity exporters of Sub-Saharan Africa for 1980-96 (a group of countries for which movements in the terms of trade have traditionally represented a key source of macroeconomic shocks) - indicate that increases in the permanent component of the terms of trade (measured using three alternative filtering techniques) indeed tend to be associated with higher rates of private savings.
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“Agenor, Pierre-Richard; Aizenman, Joshua. 2000. Savings and the Terms of Trade under Borrowing Constraints. Policy Research Working Paper;No. 2381. © http://hdl.handle.net/10986/19837 License: CC BY 3.0 IGO.”
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