Document Type

Unpublished Paper

Language

eng

Format of Original

35 p.

Publication Date

2003

Publisher

Bank of Finland Institute for Economies in Transition

Source Publication

BOFIT Discussion Papers 3/2003

Source ISSN

1456-4564

Abstract

This paper examines whether terms of trade shocks have an asymmetric effect on private savings in transition economies. A simple three-period framework is developed to show that, in the presence of binding credit constraints in bad states of nature, savings rates can be sensitive to favorable movements in the permanent component of the terms of trade. This result contrasts with the prediction of the conventional consumption-smoothing model. Empirical analysis with a dynamic panel model further confirms that while favorable movements in the permanent component of the terms of trade have an asymmetric effect on private savings, the magnitude of the effect is relatively small. The results are robust for alternative estimators, determinants, and country groupings.

Comments

Published version.BOFIT Online, No. 3 (2003). Publisher Link.© BOFIT 2003. Used with permission.

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