Private Saving and Terms of Trade Shocks: Evidence From Developing Countries

Jonathan Ostry and Carmen Reinhart

No 1991/100, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the relationship between temporary terms of trade shocks and household saving in developing countries. It is first shown that, from a theoretical standpoint, this relationship is ambiguous: private saving may rise or fall in response to a transitory terms of trade shock, depending on the values of the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between traded and nontraded goods. Empirical estimates of these two parameters are obtained using data from a sample of 13 developing countries, and then used to draw implications for the response of private saving to transitory terms of trade shocks.

Keywords: WP; terms of trade shock; discount factor; aggregate consumption good; consumption-smoothing effect; aggregate price deflator; Terms of trade; Consumption; Private savings; Real interest rates; Imports; Africa; Asia and Pacific (search for similar items in EconPapers)
Pages: 26
Date: 1991-10-01
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Citations: View citations in EconPapers (60)

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Journal Article: Private Saving and Terms of Trade Shocks: Evidence from Developing Countries (1992)
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Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1991/100

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