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Ms. Kimberly Beaton, Mr. Serhan Cevik, and Mr. Seyed Reza Yousefi
With 250 million migrants globally, remittances are one of the major sources of income in many developing countries. While there is abundant evidence that remittances facilitate consumption smoothing in receving countries, the literature has not considered whether this effect varies with the fiscal stance and during fiscal shocks. Therefore, we investigate the impact of remittances on the stability of household consumption, using both cross-country and household-level datasets. Our focus is on whether the consumption-smoothing effect changes with fiscal policy phases and whether remittances and government support are substitutes or complements in stabilizing household consumption. We find that remittances help smooth consumption, and hence improve welfare, more during fiscal consolidation episodes, while this impact is insignificant during fiscal expansions. The results also indicate that the effect is more pronounced in countries with greater reliance on remittances.
Mr. Jonathan David Ostry and Ms. Carmen Reinhart
This paper examines the relationship between temporary terms of trade shocks and household saving in developing countries. It is first shown that, from a theoretical standpoint, this relationship is ambiguous: private saving may rise or fall in response to a transitory terms of trade shock, depending on the values of the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between traded and nontraded goods. Empirical estimates of these two parameters are obtained using data from a sample of 13 developing countries, and then used to draw implications for the response of private saving to transitory terms of trade shocks.
Ms. Kimberly Beaton, Mr. Serhan Cevik, and Mr. Seyed Reza Yousefi

human development, this paper is, to the best of our knowledge, the first attempt to investigate whether remittances help smooth household consumption during fiscal shocks and whether this behavior varies with the fiscal policy stance (i.e., during contractionary and expansionary phases). This paper analyzes the consumption-smoothing effect of migrant remittances, using cross-country and household-level panel data . Remittances can affect macro-financial developments through a spectrum of channels, including growth dynamics and inflation, consumption risk

Mr. Paul Cashin and Christopher J. Kent
Is the relationship between the current account balance and the terms of trade affected by the persistence of terms of trade shocks? In intertemporal models of the current account that incorporate a consumption-smoothing and an investment response to shocks, the effect of the terms of trade on external balances is predicted to be dependent on the duration of terms of trade shocks. Using a median-unbiased estimator, an unbiased model-selection rule, and terms of trade data for 128 countries over the period 1960-99 we identify two groups of countries-those that typically experience temporary terms of trade shocks and those that typically experience permanent terms of trade shocks. The results from panel-data regressions of the two groups of countries support the theoretical predictions of the intertemporal approach to the current account. We find that the greater (lesser) the persistence of the terms of trade shock, the more (less) the investment effect dominates the consumption-smoothing effect on saving, so that the current account balance moves in the opposite (same) direction as that of the shock.
Mr. Paul Cashin and Christopher J. Kent

consumption-smoothing effect. The change in the capital stock will be greater for more persistent shocks: while a purely temporary shock to the terms of trade will have no investment effect, a permanent shock will have a strong investment effect. The response of investment to terms of trade shocks feeds directly into the determination of current account positions (see Murphy, 1992 ; Serven, 1999 ) 4 In periods following terms of trade shocks, the current account can move in the opposite direction to the shock if the effect on investment dominates the consumption-smoothing

Mr. Ian S McDonald, Serge Bésanger, and Ross Guest
This paper calculates the levels of optimal national saving, investment, and the current account balance for five Asian economies—Hong Kong SAR, Japan, Singapore, Malaysia, and the Philippines—for the period 1997–2050 using a simulation approach. These calculations show the sensitivity of results to changing demographic structures on employment participation, labor productivity; and consumption demands. In particular, the simulations reveal that variations in prospective demographic change across economies cause considerable variations in the patterns of optimal national saving rates.
International Monetary Fund. Research Dept.

quintiles ( Mohapatra and Ratha 2011 ), minimizing the consumption smoothing effect of remittances may, since these households have access to alternative means (e.g., credit markets), help to smooth out consumption shocks. Our analysis also quantifies how much of GDP shocks are absorbed by remittances, that is the risk-sharing through migration using a very simple econometric panel framework designed by Asdrubali, Sorensen, and Yosha (1996) . The results suggest that around 4 to 22 percent of GDP shocks are smoothed through remittances channel. In a context where