The current account and precautionary savings for exporters of exhaustible resources

Abstract

Exporters of exhaustible resources have historically exhibited higher income volatility than other economies, suggesting a heightened role for precautionary savings. This paper uses a parameterized small open-economy model to quantify the role of precautionary savings for exporters of exhaustible resources, when the only source of uncertainty is the price of the exhaustible resource. The parameterized model fares moderately well at capturing current account balances in both cross-section and time-series data. The results show that the precautionary motive can generate sizable external sector savings, the more so the greater the weight of exhaustible resource revenues in future income.