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Author: Mr.Paul Cashin
Publisher: International Monetary Fund
ISBN: 145197504X
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
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: Mr.Paul Cashin
Publisher: International Monetary Fund
ISBN: 145197504X
Category : Business & Economics
Languages : en
Pages : 41
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Book Description
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: Christopher J. Kent
Publisher: International Monetary Fund
ISBN: 1451856369
Category : Business & Economics
Languages : en
Pages : 50
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Book Description
Is the relationship between the current account balance and the terms of trade affected by the persistence of terms of trade shocks? In intertemporal models of the current account that incorporate a consumption-smoothing and an investment response to shocks, the effect of the terms of trade on external balances is predicted to be dependent on the duration of terms of trade shocks. Using a median-unbiased estimator, an unbiased model-selection rule, and terms of trade data for 128 countries over the period 1960-99 we identify two groups of countries-those that typically experience temporary terms of trade shocks and those that typically experience permanent terms of trade shocks. The results from panel-data regressions of the two groups of countries support the theoretical predictions of the intertemporal approach to the current account. We find that the greater (lesser) the persistence of the terms of trade shock, the more (less) the investment effect dominates the consumption-smoothing effect on saving, so that the current account balance moves in the opposite (same) direction as that of the shock.
Author: Paul Anthony Cashin
Publisher:
ISBN:
Category :
Languages : en
Pages : 40
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Book Description
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:
ISBN:
Category : Econometrics
Languages : en
Pages : 34
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Book Description
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: Paul Cashin
Publisher:
ISBN: 9780732509354
Category : Balance of payments
Languages : en
Pages : 33
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Book Description
Author: Nikola Spatafora
Publisher: World Bank Publications
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
January 1995 The authors investigate the impact on economic growth and development of long-run movements in the external terms of trade, with special reference to the experience of 18 oil-exporting countries between 1973 and 1989. They argue that this sample approximates a controlled experiment for examining the impact of unanticipated -- but permanent -- shocks to the terms of trade. They analyze the sample econometrically using panel data techniques. They find that permanent terms-of-trade shocks have a strongly significant positive effect on investment, which they justify theoretically on the grounds that countries in the sample import much of their capital equipment. The shocks also have a significant positive effect on consumption. Government consumption responds almost twice as strongly as private consumption. The shocks have no effect on savings and adversely affect the trade and current account balances. There is a significant positive effect on the output of all main categories of nontradables. But Dutch disease effects are strikingly absent. Agriculture and manufacturing do not contract in reaction to an oil price increase. Dutch disease effects may be absent in part because of policy-induced output restraints in the oil sector, or because of the enclave nature of the oil sector, which does not participate in domestic factor markets.
Author: Leslie Lipschitz
Publisher: Cambridge University Press
ISBN: 1108568467
Category : Business & Economics
Languages : en
Pages : 312
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Book Description
Understanding macroeconomic developments and policies in the twenty-first century is daunting: policy-makers face the combined challenges of supporting economic activity and employment, keeping inflation low and risks of financial crises at bay, and navigating the ever-tighter linkages of globalization. Many professionals face demands to evaluate the implications of developments and policies for their business, financial, or public policy decisions. Macroeconomics for Professionals provides a concise, rigorous, yet intuitive framework for assessing a country's macroeconomic outlook and policies. Drawing on years of experience at the International Monetary Fund, Leslie Lipschitz and Susan Schadler have created an operating manual for professional applied economists and all those required to evaluate economic analysis.
Author: Rudrani Bhattacharya
Publisher: International Monetary Fund
ISBN: 1484356160
Category : Business & Economics
Languages : en
Pages : 26
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Book Description
This paper analyses the extent to which financial integration impacts the manner in which terms of trade affect business cycles in emerging economies. Using a s mall open economy model, we show that as capital account openness increases in an economy that faces trade shocks, business cycle volatility reduces. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle.
Author: Christopher Kent
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Author: Gustavo Adler
Publisher: International Monetary Fund
ISBN: 1484356241
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade shocks of the last decade have not differed much in magnitude from those observed during the 1970s, but that the associated windfall have been substantially larger. While aggregate saving increased more than in past episodes, the share of the windfall saved (the marginal saving rate) seems to be lower, suggesting that greater aggregate saving reflects mainly the sheer size of the windfall rather than a greater 'effort' to save it. Finally, we find evidence that, while savings during the boom help to increase post-boom income, the composition of such savings matters. Specifically, in past episodes, savings allocated to foreign asset accumulation appear to have contributed more to post-boom income than those devoted to domestic investment.
