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Commodity terms of trade co-movement: Global and regional factors

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  • Xia, Tian
  • Zhou, Hang

Abstract

In this paper, we estimate a dynamic factor model with stochastic volatility to extract the latent factors that capture the commodity terms of trade co-movement across 93 countries. We decompose each country's commodity terms of trade into a global component and a regional component, depending upon the country is a commodity exporter that primarily exports fuel or non-fuel commodities. We find that the global factor can explain the bulk of terms of trade fluctuations in commodity non-exporters and fuel commodity exporters, while the regional factor is more influential among non-fuel commodity exporters. The global factor is shown to co-move with fluctuations in the global commodity market, as well as with measures of global demand and uncertainty. We further analyze the impact of shocks in factor volatilities on a sample of emerging market economies, demonstrating the different economic consequences of shocks on global and regional factors.

Suggested Citation

  • Xia, Tian & Zhou, Hang, 2023. "Commodity terms of trade co-movement: Global and regional factors," Journal of International Money and Finance, Elsevier, vol. 139(C).
    • Handle: RePEc:eee:jimfin:v:139:y:2023:i:c:s0261560623001456
    DOI: 10.1016/j.jimonfin.2023.102944
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    More about this item

    Keywords

    Terms of trade; Commodity prices; Common factors; Uncertainty;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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