Savings and the terms of trade under borrowing constraints

Pierre-Richard Agénor and Joshua Aizenman

No 2381, Policy Research Working Paper Series from The World Bank

Abstract: The authors examine the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. Using a simple three-period model, they show that if households expect to face binding constraints on borrowing in bad states of nature (when the economy is in a long trough rather than a sharp peak). Savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade - in contrast with the predictions of conventional consumption-smoothing models. They test the 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 1980-96 (a group of countries for which movements in the terms of trade have traditionally represented a key source of macroeconomic shocks) - indicate that increases in the permanent component of the terms of trade (measured using three alternative filtering techniques) indeed tend to be associated with higher rates of private savings.

Keywords: Banks&Banking Reform; Economic Theory&Research; Environmental Economics&Policies; Payment Systems&Infrastructure; Fiscal&Monetary Policy; Environmental Economics&Policies; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Banks&Banking Reform; Inequality; Economic Theory&Research (search for similar items in EconPapers)
Date: 2000-06-30
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Citations: View citations in EconPapers (5)

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Related works:
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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Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:2381

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