Effects of transitory shocks to aggregate output on consumption in poor countries

Markus Brückner and Mark Gradstein

Journal of International Economics, 2013, vol. 91, issue 2, 343-357

Abstract: This paper provides instrumental variables estimates of the response of aggregate private consumption to transitory output shocks in poor countries. To identify exogenous, unanticipated, idiosyncratic and transitory variations in national output we use year-to-year variations in rainfall as an instrumental variable in a panel of 39 sub-Saharan African countries during the period 1980–2009. Our estimates yield a marginal propensity to consume out of transitory output of around 0.2. To explain this result we show, using instrumental variables techniques, that there is a significant negative effect of transitory output shocks on net current transfers and a significant positive and quantitatively large effect on the trade balance. An important implication is that frictions to private financial flows do not necessarily imply large effects of transitory shocks to aggregate output on private consumption in poor countries.

Keywords: Transitory output shocks; Consumption; Risk sharing; Net current transfers; International capital flows; Permanent income hypothesis (search for similar items in EconPapers)
JEL-codes: E21 F32 F35 F41 O55 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022199613000779
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Effects of Transitory Shocks to Aggregate Output on Consumption in Poor Countries (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:91:y:2013:i:2:p:343-357

DOI: 10.1016/j.jinteco.2013.07.008

Access Statistics for this article

Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and Rodríguez-Clare, Andrés

More articles in Journal of International Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().