Working Paper: NBER ID: w7743
Authors: Pierrerichard Agenor; Joshua Aizenman
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.
Keywords: No keywords provided
JEL Codes: D91; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Permanent terms-of-trade shocks (F41) | Private savings (D14) |
| Borrowing constraints (F34) | Precautionary saving behavior (D14) |
| Positive terms-of-trade shocks (F14) | Private savings (D14) |
| Permanent terms-of-trade shocks (F41) | Higher rates of private savings (D14) |
| Adverse economic states (F69) | Increase in savings due to anticipation of borrowing constraints (E21) |