What Drives Consumption Booms?

Consumption booms have been common in both industrial and developingcountries, and several explanations have been offered for theiroccurrence. These include economywide wealth effects associatedwith favorable movements in the terms of trade or euphoric expectationstriggered by macroeconomic reforms, Ricardian effects associatedwith fiscal stabilization, lending booms following financialliberalization, and a variety of distortions in intertemporalrelative prices. Using a large cross-country sample of booms,this article assesses how widely applicable these explanationsare. The key finding is that wealth effects linked to favorablemovements in the terms of trade and anticipated improvementsin macroeconomic performance seem to have been more importantempirically than explanations relying primarily on fiscal phenomenaor distortions in intertemporal relative prices.