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Terms of trade shocks and the current account in a unified currency area

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Author Info
L. Sahely (Eastern Caribbean Central Bank (ECCB), St. Kitts, West Indies)
R. Darius (Eastern Caribbean Central Bank (ECCB), St. Kitts, West Indies)
O. Williams (Eastern Caribbean Central Bank (ECCB), St. Kitts, West Indies)
Abstract

The recent debate over the European Union's banana import regime that ensued following the World Trade Organization ruling that found it to be illegal, has implications for those developing countries that rely on preferential access to this market. This paper finds that for those territories of the Eastern Caribbean Central Bank monetary union, the terms of trade shocks are not very persistent and have a large temporary component. In addition, the terms of trade shocks had a small impact on the current account. These shocks however had a larger impact on the supply side suggesting price sensitivity of farmers. Copyright © 2001 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jid.846
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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 13 (2001)
Issue (Month): 8 ()
Pages: 1179-1188
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:wly:jintdv:v:13:y:2001:i:8:p:1179-1188

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  1. Beveridge, Stephen & Nelson, Charles R., 1981. "A new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the `business cycle'," Journal of Monetary Economics, Elsevier, vol. 7(2), pages 151-174. [Downloadable!] (restricted)
  2. Sen, Partha & Turnovsky, Stephen J., 1989. "Deterioration of the terms of trade and capital accumulation: A re-examination of the Laursen-Metzler effect," Journal of International Economics, Elsevier, vol. 26(3-4), pages 227-250, May. [Downloadable!] (restricted)
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  3. Paul Cashin & Hong Liang & C. John McDermott, 1999. "How Persistent Are Shocks to World Commodity Prices?," IMF Working Papers 99/80, International Monetary Fund.
  4. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February. [Downloadable!] (restricted)
  5. Serven, Luis, 1995. "Terms-of-trade shocks and optimal investment : another look at the Laursen-Metzler effect," Policy Research Working Paper Series 1424, The World Bank. [Downloadable!]
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  6. Maurice Obstfeld, 1983. "Intertemporal Price Speculation and the Optimal Current-Account Deficit," NBER Working Papers 1100, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March. [Downloadable!] (restricted)
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  8. Paul Cashin & C. John McDermott, 1998. "Terms of Trade Shocks and the Current Account," IMF Working Papers 98/177, International Monetary Fund.
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  9. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October. [Downloadable!] (restricted)
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