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Coping with terms-of-trade shocks in developing countries

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Author Info

  • Christian Broda
  • Cedric Tille

Abstract

Sharp swings in a developing country's terms of trade, the price of its exports relative to the price of its imports, can seriously disrupt output growth. An analysis of the effects of a decline in export prices in seventy-five developing economies suggests that countries with a flexible exchange rate will experience a much milder contraction in output than their counterparts with fixed exchange rate regimes.

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Bibliographic Info

Article provided by Federal Reserve Bank of New York in its journal Current Issues in Economics and Finance.

Volume (Year): 9 (2003)
Issue (Month): Nov ()
Pages:

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Handle: RePEc:fip:fednci:y:2003:i:nov:n:v.9no.11

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Related research

Keywords: Foreign exchange rates ; Developing countries ; Exports ; Imports ; Prices ; International trade ; Gross domestic product;

References

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  1. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
  2. Marianne Baxter & Michael A. Kouparitsas, 2000. "What Causes Fluctuations in the Terms of Trade?," NBER Working Papers 7462, National Bureau of Economic Research, Inc.
  3. Tornell, Aaron & Velasco, Andres, 2000. "Fixed versus flexible exchange rates: Which provides more fiscal discipline?," Journal of Monetary Economics, Elsevier, vol. 45(2), pages 399-436, April.
  4. Guillermo A. Calvo & Frederic S. Mishkin, 2003. "The Mirage of Exchange Rate Regimes for Emerging Market Countries," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 99-118, Fall.
  5. Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
  6. Atish R. Ghosh & Anne-Marie Gulde & Jonathan D. Ostry & Holger C. Wolf, 1997. "Does The Nominal Exchange Rate Regime Matter?," Working Papers 97-09, New York University, Leonard N. Stern School of Business, Department of Economics.
  7. Guillermo A. Calvo & Carmen M. Reinhart, 2000. "Fixing for Your Life," NBER Working Papers 8006, National Bureau of Economic Research, Inc.
  8. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
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Citations

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Cited by:
  1. Nureldin Hussain & Bernard Gunter, 2005. "Working Paper 75 - External Shocks and the HIPC Initiative: Impacts on Growth and Poverty in Africa," Working Paper Series 210, African Development Bank.
  2. Eicher, Theo S. & Schubert, Stefan F. & Turnovsky, Stephen J., 2008. "Dynamic effects of terms of trade shocks: The impact on debt and growth," Journal of International Money and Finance, Elsevier, vol. 27(6), pages 876-896, October.
  3. Juan Carlos Hatchondo & Leonardo Martinez & Horacio Sapriza, 2007. "The economics of sovereign defaults," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 163-187.
  4. Gabriel Cuadra & Horacio Sapriza, 2006. "Sovereign Default, Terms of Trade and Interest Rates in Emerging Markets," Working Papers 2006-01, Banco de México.
  5. Zafar, Ali, 2004. "What happens when a country does not adjust to terms of trade shocks? the case of oil-rich Gabon," Policy Research Working Paper Series 3403, The World Bank.
  6. Towbin, Pascal & Weber, Sebastian, 2013. "Limits of floating exchange rates: The role of foreign currency debt and import structure," Journal of Development Economics, Elsevier, vol. 101(C), pages 179-194.
  7. Joshua Aizenman, 2007. "International Reserves Management and the Current Account," Working Papers Central Bank of Chile 449, Central Bank of Chile.
  8. Joshua Aizenman, 2006. "International Reserves Management and the Current Account," NBER Working Papers 12734, National Bureau of Economic Research, Inc.
  9. Kiran Ijaz & Muhammad Zakaria & Bashir A. Fida, 2014. "Terms-of-Trade Volatility and Inflation in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(1), pages 111-132, Jan-June.

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