Cover IMF Working Papers
The Terms of Trade and Economic Fluctuations
Author: Mr. Enrique G. Mendoza
Series:
IMF Working Papers
Volume/Issue:
Volume 1992: Issue 098
Language:
English
Publication Date:
01 Nov 1992
DOI:
https://doi.org/10.5089/9781451852066.001
ISBN:
9781451852066
ISSN:
1018-5941
Pages:
72
Keywords:
WP; standard deviation; real GDP; U.S. dollar; terms-of-trade shock; terms-of-trade disturbance; form terms of trade; open economy; terms-of-trade effect; Terms of trade; Trade balance; Consumption; Business cycles; Import prices; Western Hemisphere; Middle East; Africa; Asia and Pacific
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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A three-good, stochastic intertemporal equilibrium model of a small open economy is used to examine the link between terms of trade and business cycles. Equilibrium co-movements of model economies representing industrial and developing countries are computed and compared with the stylized facts of 30 countries. The results show that terms-of-trade shocks account for half of observed output variability and that the model mimics the Harberger-Laursen-Metzler effect and produces large deviations from purchasing power parity. The elasticity of substitution between tradable and nontradable goods and the persistence of the shocks play a key role in producing these results.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund