Intertemporal Substitution and Terms-of-Trade Shocks

15 Pages Posted: 3 Oct 2003

See all articles by Paul Anthony Cashin

Paul Anthony Cashin

International Monetary Fund (IMF)

C. John McDermott

National Bank of New Zealand

Abstract

The paper examines the relationship between transitory terms-of-trade shocks and private saving. Using a model allowing for nonseparability between the consumption of tradables and nontradables, the paper estimates the intertemporal elasticity of substitution while accounting for the intratemporal elasticity of substitution between the consumption of tradables and nontradables. Empirical analysis of data for five industrial countries indicates that in response to transitory terms-of-trade shocks, intertemporal substitution of consumption and intratemporal substitution of consumption between tradables and nontradables both have large effects on private saving.

Suggested Citation

Cashin, Paul Anthony and McDermott, C. John, Intertemporal Substitution and Terms-of-Trade Shocks. Available at SSRN: https://ssrn.com/abstract=450970

Paul Anthony Cashin (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

C. John McDermott

National Bank of New Zealand ( email )

P.O. Box 540
Wellington
New Zealand

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