The Impact of Terms of Trade and Macroeconomic Regimes on Private Saving

Posted: 13 Sep 2017

See all articles by Francesco Grigoli

Francesco Grigoli

International Monetary Fund (IMF)

Alexander Herman

International Monetary Fund (IMF)

Klaus Schmidt-Hebbel

Pontifical Catholic University of Chile

Date Written: August 2016

Abstract

In this paper we present novel findings on private saving behavior. Relying on the largest available world database, we find that higher terms of trade (TOT) raise saving, and this effect is much larger for temporary TOT shocks. When credit constraints are less binding, the marginal effect of higher TOT on private saving is lessened. Accelerations in TOT growth and larger TOT volatility raise private saving. While adopting fiscal rules and floating exchange rate regimes yields no effect on private saving, introducing an inflation targeting regime reduces private saving, possibly by lessening the need for precautionary saving.

Keywords: Consumption, Private saving, Terms of trade, Fiscal rules, Inflation targeting, Exchange rate regime

JEL Classification: C23, E21, H30

Suggested Citation

Grigoli, Francesco and Herman, Alexander and Schmidt-Hebbel, Klaus, The Impact of Terms of Trade and Macroeconomic Regimes on Private Saving (August 2016). Economics Letters, Vol. 145, No. C, 2016. Available at SSRN: https://ssrn.com/abstract=3035612

Francesco Grigoli

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alexander Herman

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Klaus Schmidt-Hebbel (Contact Author)

Pontifical Catholic University of Chile ( email )

Av. Vicuna Mackenna 4860
Santiago
Chile

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