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Author | : Luis Serven |
Publisher | : World Bank Publications |
Total Pages | : 34 |
Release | : 1999 |
Genre | : |
ISBN | : |
Download Terms-of-trade Shocks and Optimal Investment Book in PDF, ePub and Kindle
February 1995 Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, because capital goods imports are excluded from the analytical framework -- an exclusion both arbitrary and unrealistic. Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, says Serven, because capital goods imports are excluded from the analytical framework. He argues that such an exclusion is both arbitrary and unrealistic. Serven reexamines the consequences of permanent and transitory changes in the terms of trade in a rational-expectations model of a small open economy with intertemporally optimizing agents, and with trade in both consumption and capital goods. In this framework, the response to a permanent terms of trade improvement is unambiguous: The long-run capital stock, and thus investment, must rise, and the current account must deteriorate -- exactly the opposite of the Laursen-Metzler effect. A transitory improvement in the terms of trade raises saving but has an uncertain effect on investment. So, the impact on the current account is generally ambiguous and is shown to depend on three factors: the import contents of consumption and investment, the duration of the windfall, and the degree of intertemporal substitutability in both consumption and investment. This paper -- a product of the Macroeconomics and Growth Division, Policy Research Department -- is part of a larger effort in the department to understand the macroeconomic impact of policy shifts and external shocks. The author may be contacted at [email protected].
Author | : Luis Servén |
Publisher | : |
Total Pages | : 34 |
Release | : 2016 |
Genre | : |
ISBN | : |
Download Terms-of-Trade Shocks and Optimal Investment Book in PDF, ePub and Kindle
Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, because capital goods imports are excluded from the analytical framework -- an exclusion both arbitrary and unrealistic. Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, says Serven, because capital goods imports are excluded from the analytical framework. He argues that such an exclusion is both arbitrary and unrealistic.Serven reexamines the consequences of permanent and transitory changes in the terms of trade in a rational-expectations model of a small open economy with intertemporally optimizing agents, and with trade in both consumption and capital goods.In this framework, the response to a permanent terms of trade improvement is unambiguous: The long-run capital stock, and thus investment, must rise, and the current account must deteriorate -- exactly the opposite of the Laursen-Metzler effect.A transitory improvement in the terms of trade raises saving but has an uncertain effect on investment. So, the impact on the current account is generally ambiguous and is shown to depend on three factors: the import contents of consumption and investment, the duration of the windfall, and the degree of intertemporal substitutability in both consumption and investment.This paper -- a product of the Macroeconomics and Growth Division, Policy Research Department -- is part of a larger effort in the department to understand the macroeconomic impact of policy shifts and external shocks. The author may be contacted at [email protected].
Author | : International Monetary Fund |
Publisher | : International Monetary Fund |
Total Pages | : 57 |
Release | : 1999-10-01 |
Genre | : Business & Economics |
ISBN | : 1451855583 |
Download Macroeconomic and Sectoral Effects of Terms-of-Trade Shocks Book in PDF, ePub and Kindle
This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch ‘Disease’ effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.
Author | : Norbert Funke |
Publisher | : International Monetary Fund |
Total Pages | : 30 |
Release | : 2008 |
Genre | : Business & Economics |
ISBN | : |
Download Terms of Trade Shocks and Economic Recovery Book in PDF, ePub and Kindle
This paper identifies factors that contribute to a fast recovery in growth after persistent negative terms of trade shocks, using a sample of 159 countries for 1970-2006. The results suggest that policies matter. Fast recoveries are fairly robustly related to real exchange rate depreciation and improvements in government stability and the institutional environment. A timely increase in aid may also support recovery.
Author | : Mr.Paul Cashin |
Publisher | : International Monetary Fund |
Total Pages | : 41 |
Release | : 1998-12-01 |
Genre | : Business & Economics |
ISBN | : 145197504X |
Download Terms of Trade Shocks and the Current Account Book in PDF, ePub and Kindle
This paper examines the relationship between terms of trade shocks, private saving, and the current account position. The relationship between these variables is theoretically ambiguous: an adverse transitory terms of trade shock can either induce a deterioration or an improvement in the current account, depending on whether the resulting income effects are greater or less than the resulting substitution effects. The substitution effects involve both intertemporally substituting consumption and intratemporally substituting consumption between importables and nontradables. The relative strength of these substitution effects is estimated using data for five OECD countries during 1970/95; both are found to exert large and significant effects on the current account balance.
Author | : Maurice Obstfeld |
Publisher | : |
Total Pages | : 34 |
Release | : 1982 |
Genre | : Econometrics |
ISBN | : |
Download Transitory Terms-of-trade Shocks and the Current Account Book in PDF, ePub and Kindle
The paper uses an intertemporal perfect-foresight optimizing model to analyze the effect of transitory terms-of-trade shocks on a small open . economy's current-account and utility time profiles. An adverse terms-of-trade shift known to be temporary induces the economy to run down its stock of external assets in the period before the terms of trade revert to their initial level. Subsequently, the assets consumed during this period are reaccumulated. The current-account response is due only in part to a desire to smooth out the future consumption stream. In addition, households know that the real value of any debt incurred while the terms of trade are unfavorable will be reduced sharply when the terms of trade improve. This opportunity for intertemporal price speculation causes the time path of instantaneous utility to be discontinuous,
Author | : Hiroyuki Kasahara |
Publisher | : |
Total Pages | : 166 |
Release | : 2002 |
Genre | : |
ISBN | : |
Download Policy Instability and Investment Book in PDF, ePub and Kindle
Author | : Matthew Bishop |
Publisher | : Bloomberg Press |
Total Pages | : 282 |
Release | : 2004-05-01 |
Genre | : Business & Economics |
ISBN | : 9781861975805 |
Download Essential Economics Book in PDF, ePub and Kindle
Author | : Bertrand Gruss |
Publisher | : International Monetary Fund |
Total Pages | : 38 |
Release | : 2019-01-24 |
Genre | : Business & Economics |
ISBN | : 1484393856 |
Download Commodity Terms of Trade Book in PDF, ePub and Kindle
This paper presents a comprehensive database of country-specific commodity price indices for 182 economies covering the period 1962-2018. For each country, the change in the international price of up to 45 individual commodities is weighted using commodity-level trade data. The database includes a commodity terms-of-trade index—which proxies the windfall gains and losses of income associated with changes in world prices—as well as additional country-specific series, including commodity export and import price indices. We provide indices that are constructed using, alternatively, fixed weights (based on average trade flows over several decades) and time-varying weights (which can account for time variation in the mix of commodities traded and the overall importance of commodities in economic activity). The paper also discusses the dynamics of commodity terms of trade across country groups and their influence on key macroeconomic aggregates.
Author | : Federico Di Pace |
Publisher | : INTERNATIONAL MONETARY FUND |
Total Pages | : 61 |
Release | : 2020-12-11 |
Genre | : Business & Economics |
ISBN | : 9781513563916 |
Download Terms-of-Trade Shocks are Not all Alike Book in PDF, ePub and Kindle
When analyzing terms-of-trade shocks, it is implicitly assumed that the economy responds symmetrically to changes in export and import prices. Using a sample of developing countries our paper shows that this is not the case. We construct export and import price indices using commodity and manufacturing price data matched with trade shares and separately identify export price, import price, and global economic activity shocks using sign and narrative restrictions. Taken together, export and import price shocks account for around 40 percent of output fluctuations but export price shocks are, on average, twice as important as import price shocks for domestic business cycles.