{
  "title": "Private Saving and Terms of Trade Shocks: Evidence From Developing Countries",
  "publication": "IMF Working Papers, October 1, 1991",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/private-saving-and-terms-of-trade-shocks-evidence-from-developing-countries-976",
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  "summary": "This paper examines the relationship between temporary terms of trade shocks and household saving in developing countries.",
  "sections": [
    {
      "heading": "Main conclusion",
      "content": "- The relationship between temporary terms of trade shocks and household (private) saving in developing countries is theoretically ambiguous: private saving may rise or fall in response to a transitory terms of trade shock.\n- The direction of the response depends on two structural preference parameters: the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between traded and nontraded goods.\n- Empirical estimates of these two parameters are obtained from a sample of 13 developing countries and are used to draw implications for private saving responses to transitory terms of trade shocks."
    },
    {
      "heading": "Theoretical analysis",
      "content": "- A transitory terms of trade shock can affect private saving through competing channels:\n  - Consumption-smoothing effect mediated by the intertemporal elasticity of substitution.\n  - Reallocation between traded and nontraded goods mediated by the intratemporal elasticity of substitution between traded and nontraded goods.\n- Ambiguity arises because the magnitudes and signs of these elasticities determine whether the net effect on private saving is positive or negative."
    },
    {
      "heading": "Empirical strategy and data",
      "content": "- Empirical estimates target two parameters:\n  - The intertemporal elasticity of substitution.\n  - The intratemporal elasticity of substitution between traded and nontraded goods.\n- Data are from a sample of 13 developing countries."
    },
    {
      "heading": "Key implications and findings",
      "content": "- Empirically estimated parameter values are used to infer the likely sign and magnitude of private saving responses to transitory terms of trade shocks for the sample.\n- The paper draws implications for how private saving behavior in developing countries reacts to temporary improvements or deteriorations in terms of trade, given the estimated elasticities."
    },
    {
      "heading": "Subjects and keywords",
      "content": "- Subject: Consumption, Financial services, Imports, International trade, National accounts, Private savings, Real interest rates, Terms of trade\n- Keywords: Africa, aggregate consumption good, aggregate price deflator, Asia and Pacific, Consumption, consumption-smoothing effect, discount factor, Imports, Private savings, Real interest rates, Terms of trade, terms of trade shock, WP\n\nIMF Working Papers — Private Saving and Terms of Trade Shocks: Evidence From Developing Countries (Working Paper No. 1991/100), by Jonathan David Ostry and Carmen Reinhart.\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/private-saving-and-terms-of-trade-shocks-evidence-from-developing-countries-976"
    }
  ],
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    "Authors: Jonathan David Ostry, Carmen Reinhart",
    "Published: October 1, 1991",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451852318.001",
    "The relationship between temporary terms of trade shocks and household (private) saving in developing countries is theoretically ambiguous: private saving may rise or fall in response to a transitory terms of trade shock.",
    "The direction of the response depends on two structural preference parameters: the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between traded and nontraded goods.",
    "Empirical estimates of these two parameters are obtained from a sample of 13 developing countries and are used to draw implications for private saving responses to transitory terms of trade shocks.",
    "A transitory terms of trade shock can affect private saving through competing channels:",
    "Ambiguity arises because the magnitudes and signs of these elasticities determine whether the net effect on private saving is positive or negative.",
    "Empirical estimates target two parameters:",
    "Data are from a sample of 13 developing countries.",
    "Empirically estimated parameter values are used to infer the likely sign and magnitude of private saving responses to transitory terms of trade shocks for the sample.",
    "The paper draws implications for how private saving behavior in developing countries reacts to temporary improvements or deteriorations in terms of trade, given the estimated elasticities.",
    "Subject: Consumption, Financial services, Imports, International trade, National accounts, Private savings, Real interest rates, Terms of trade",
    "Keywords: Africa, aggregate consumption good, aggregate price deflator, Asia and Pacific, Consumption, consumption-smoothing effect, discount factor, Imports, Private savings, Real interest rates, Terms of trade, terms of trade shock, WP"
  ],
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