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

Abdur R. Chowdhury
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Abdur R. Chowdhury: Bank of Finland Institute for Economies in Transition

Macroeconomics from EconWPA

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: F10 E21 P33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr, nep-mac and nep-tra
Date: 2003-03-12
Note: Type of Document - pdf; prepared on IBM PC ; to print on HP/PostScript/Franciscan monk; pages: 35 ; figures: included
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpma:0303006

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