Citation

Discussion Paper Details

Please find the details for DP14594 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Terms-of-Trade Shocks are Not all Alike

Author(s): Federico DiPace, Luciana Juvenal and Ivan Petrella

Publication Date: April 2020

Keyword(s): business cycles, commodity prices, terms of trade and World Shocks

Programme Area(s): International Macroeconomics and Finance and Monetary Economics and Fluctuations

Abstract: 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. Given that shifts in export and import prices have asymmetric effects on the economy, global economic activity shocks, which simultaneously affect export and import prices, are largely undetected in the terms of trade measure but have large effects on domestic business cycles.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14594

Bibliographic Reference

DiPace, F, Juvenal, L and Petrella, I. 2020. 'Terms-of-Trade Shocks are Not all Alike'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14594