Oil Exporters' Dilemma: How Much to Save and How Much to Invest
January 1, 2012
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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.
Subject: Consumption, Income, Income shocks, Precautionary savings, Productivity
Keywords: buffer-stock saving, investment, investment rate, WP
Pages:
22
Volume:
2012
DOI:
Issue:
004
Series:
Working Paper No. 2012/004
Stock No:
WPIEA2012004
ISBN:
9781475502459
ISSN:
1018-5941
