Private saving, interest rates and liquidity constraints in LDCs: recent evidence
There is still considerable controversy about the interest rate responsiveness of private saving in developing countries. This paper provides recent evidence based on individual country estimations for a sample of 16 countries. The model used here follows the 'Euler equation approach' and includes rational and forward-looking permanent income consumers together with liquidity-constrained consumers. Overall, for this sample of countries the results obtained in this paper offer new evidence of a low responsiveness of saving to changes in the interest rate. My results also support a strong role of liquidity constraints in these countries.
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