Do asymmetric terms of trade shocks affect private savings in a transition economy?

Abdur R. Chowdhury

No 3/2003, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: This paper examines whether terms of trade shocks have an asymmetric effect on private savings in transition economies.A simple three-period framework is developed to show that, in the presence of binding credit constraints in bad states of nature, savings rates can be sensitive to favorable movements in the permanent component of the terms of trade.This result contrasts with the prediction of the conventional consumption-smoothing model.Empirical analysis with a dynamic panel model further confirms that while favorable movements in the permanent component of the terms of trade have an asymmetric effect on private savings, the magnitude of the effect is relatively small.The results are robust for alternative estimators, determinants, and country groupings.

Keywords: transition; private savings; terms of trade (search for similar items in EconPapers)
JEL-codes: E21 F10 P33 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2003_003

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