Journal Article

What Drives Consumption Booms?

Peter J. Montiel

in The World Bank Economic Review

Published on behalf of World Bank

Volume 14, issue 3, pages 457-480
Published in print September 2000 | ISSN: 0258-6770
Published online September 2000 | e-ISSN: 1564-698X | DOI: http://dx.doi.org/10.1093/wber/14.3.457
What Drives Consumption Booms?

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Consumption booms have been common in both industrial and developing countries, and several explanations have been offered for their occurrence. These include economywide wealth effects associated with favorable movements in the terms of trade or euphoric expectations triggered by macroeconomic reforms, Ricardian effects associated with fiscal stabilization, lending booms following financial liberalization, and a variety of distortions in intertemporal relative prices. Using a large cross-country sample of booms, this article assesses how widely applicable these explanations are. The key finding is that wealth effects linked to favorable movements in the terms of trade and anticipated improvements in macroeconomic performance seem to have been more important empirically than explanations relying primarily on fiscal phenomena or distortions in intertemporal relative prices.

Journal Article.  0 words. 

Subjects: Development Planning and Policy

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