Effects of transitory shocks to aggregate output on consumption in poor countries

Markus Brückner, Mark Gradstein

Research output: Contribution to journalArticlepeer-review

4 Scopus citations


This paper provides instrumental variables estimates of the response of aggregate private consumption to transitory output shocks in poor countries. To identify exogenous, unanticipated, idiosyncratic and transitory variations in national output we use year-to-year variations in rainfall as an instrumental variable in a panel of 39 sub-Saharan African countries during the period 1980-2009. Our estimates yield a marginal propensity to consume out of transitory output of around 0.2. To explain this result we show, using instrumental variables techniques, that there is a significant negative effect of transitory output shocks on net current transfers and a significant positive and quantitatively large effect on the trade balance. An important implication is that frictions to private financial flows do not necessarily imply large effects of transitory shocks to aggregate output on private consumption in poor countries.

Original languageEnglish
Pages (from-to)343-357
Number of pages15
JournalJournal of International Economics
Issue number2
StatePublished - 1 Nov 2013


  • Consumption
  • International capital flows
  • Net current transfers
  • Permanent income hypothesis
  • Risk sharing
  • Transitory output shocks

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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