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The Zero-root Property: Permanent vs Temporary Terms-of-trade Shocks

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Olivier Cardi

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Abstract

In this contribution, we show that the persistence and the time of occurrence of a terms-of-trade shock matter in determining steady-state changes: (i) a strong persistent (temporary) terms-of-trade worsening induces a long-run decline in the real expenditure greater than after a permanent disturbance; (ii) an adverse permanent shift in the terms of trade raises the real expenditure in the long run if the shock is expected to occur in the distant future. Finally, according to whether a temporary terms-of-trade worsening is anticipated or not, the current account displays a monotonic or a nonmonotonic adjustment. Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd.

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File URL: http://www.blackwell-synergy.com/links/doi/10.1111/j.1467-9396.2007.00697.x
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Article provided by Blackwell Publishing in its journal Review of International Economics.

Volume (Year): 15 (2007)
Issue (Month): 4 (09)
Pages: 782-802
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Handle: RePEc:bla:reviec:v:15:y:2007:i:4:p:782-802

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  7. Partha Sen & Stephen J. Turnovsky, 1989. "Deterioration of the Terms of Trade and Capital Accumulation: A Reexamination of the Laursen-Metzler Effect," NBER Working Papers 2616, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  19. repec:fth:harver:1504 is not listed on IDEAS
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  25. Schubert, Stefan F & Turnovsky, Stephen J, 2002. "The Dynamics of Temporary Policies in a Small Open Economy," Review of International Economics, Blackwell Publishing, vol. 10(4), pages 604-22, November. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Olivier, CARDI, 2005. "Another View of the J-Curve," Discussion Papers (ECON - Département des Sciences Economiques) 2005029, Université catholique de Louvain, Département des Sciences Economiques. [Downloadable!]
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