The terms of trade and private savings: empirical evidence with a structural approach

Yoichi Matsubayashi ()

Applied Economics Letters, 2002, vol. 9, issue 1, 55-59

Abstract: This paper proposes a structural approach to investigate the relationship between the terms of trade and private savings in Japan and the US. A small open economy model is developed in which an infinitely-living representative agent consumes both tradable and non-tradable goods and a stochastic Euler equation is derived. Then, the GMM estimation method developed by Hansen (1982) is applied to estimate structural parameters and test model specifications. The main result is that the estimate for the intertemporal marginal rate of substitution is more than one for both countries. It may therefore be concluded that an improvement in the future terms of trade can decrease the private savings in Japan and the US.

Date: 2002
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DOI: 10.1080/13504850110049342

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