Effects of Transitory Shocks to Aggregate Output on Consumption in Poor Countries

Mark Gradstein and Brückner, Markus
Authors registered in the RePEc Author Service: Markus Brueckner

No 9658, CEPR Discussion Papers from Centre for Economic Policy Research

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: Consumption; International capital flows; Net current transfers; Permanent income hypothesis; Risk sharing; Transitory output shocks (search for similar items in EconPapers)
JEL-codes: E21 F32 F35 F41 O55 (search for similar items in EconPapers)
Date: 2013-09
New Economics Papers: this item is included in nep-afr, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Journal Article: Effects of transitory shocks to aggregate output on consumption in poor countries (2013)
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