Savings and the Terms of Trade Under Borrowing Constraints

Pierre-Richard Agénor and Joshua Aizenman

No 7743, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. The first part uses a simple three-period model to show that, if households expect to face binding borrowing constraints in bad states of nature, savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade in contrast to what conventional consumption-smoothing models would predict. The second part tests for the existence of asymmetric effects of terms-of-trade disturbances using an econometric model that controls for various standard determinants of private savings. The results, based on panel data for non-oil commodity exporters of sub-Saharan Africa for the period 1980-96, indicate that increases in the permanent component of the terms of trade (measured using three alternative filtering techniques) tend indeed be associated with higher rates of private savings.

JEL-codes: D91 F41 (search for similar items in EconPapers)
Date: 2000-06
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as Agenor, Pierre-Richard & Aizenman, Joshua, 2004. "Savings and the terms of trade under borrowing constraints," Journal of International Economics, Elsevier, vol. 63(2), pages 321-340, July.

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Journal Article: Savings and the terms of trade under borrowing constraints (2004)
Working Paper: Savings and the terms of trade under borrowing constraints (2000)
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