Oil Exporters' Dilemma: How Much to Save and How Much to Invest

Author/Editor:

Reda Cherif ; Fuad Hasanov

Publication Date:

January 1, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Policymakers in oil-exporting countries confront the question of how to allocate oil revenues among consumption, saving, and investment in the face of high income volatility. We study this allocation problem in a precautionary saving and investment model under uncertainty. Consistent with data in the 2000s, precautionary saving is sizable and the marginal propensity to consume out of permanent shocks is below one, in stark contrast to the predictions of the perfect foresight model. The optimal investment rate is high if productivity in the tradable sector is high enough.

Series:

Working Paper No. 2012/004

Subject:

Consumption Income Income shocks Precautionary savings Productivity

English

Publication Date:

January 1, 2012

ISBN/ISSN:

9781475502459/1018-5941

Stock No:

WPIEA2012004

Pages:

22

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