BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Abdur R. Chowdhury
Do asymmetric terms of trade shocks affect private savings in a transition economy?
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.
Keywords: transition; private savings; terms of trade; (follow links to similar papers)
JEL-Codes: E21; F10; P33; (follow links to similar papers)
35 pages, February 19, 2003
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