Do Asymmetric Terms of Trade Shocks Affect Private Savings in a Transition Economy?

35 Pages Posted: 19 Sep 2007

See all articles by Abdur Chowdhury

Abdur Chowdhury

Marquette University - Department of Economics; United Nations - Economic Commission for Europe

Date Written: February 19, 2003

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

JEL Classification: F10, E21, P33

Suggested Citation

Chowdhury, Abdur, Do Asymmetric Terms of Trade Shocks Affect Private Savings in a Transition Economy? (February 19, 2003). BOFIT Discussion Paper No. 3/2003. Available at SSRN: https://ssrn.com/abstract=1015456 or http://dx.doi.org/10.2139/ssrn.1015456

Abdur Chowdhury (Contact Author)

Marquette University - Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

United Nations - Economic Commission for Europe ( email )

Palais des Nations
Geneva
Switzerland

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