Savings and the terms of trade under borrowing constraints (English)

The authors examine the extent to which permanent terms-of-trade shocks have an asymmetric effect on private savings. Using a simple three-period model, they show that if households expect to face binding constraints on borrowing in bad states of nature (when the economy is in a long trough rather than a sharp peak). Savings rates will respond asymmetrically to favorable movements in the permanent component of the terms of trade - in contrast with...
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Citation

Agenor, Pierre-Richard; Aizenman, Joshua.

Savings and the terms of trade under borrowing constraints (English). Policy, Research working paper ; no. WPS 2381 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/348561468739157490

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