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

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  • 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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Article provided by John Wiley & Sons, Ltd. in its journal Journal of International Development.

Volume (Year): 13 (2001)
Issue (Month): 8 ()
Pages: 1179-1188

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Handle: RePEc:wly:jintdv:v:13:y:2001:i:8:p:1179-1188

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Web page: http://www3.interscience.wiley.com/journal/5102/home

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  1. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(5), pages 893-920, October.
  2. Obstfeld, Maurice, 1983. "Intertemporal price speculation and the optimal current-account deficit," Journal of International Money and Finance, Elsevier, Elsevier, vol. 2(2), pages 135-145, August.
  3. 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, Elsevier, vol. 26(3-4), pages 227-250, May.
  4. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 97(2), pages 251-70, May.
  5. Hong Liang & C. John McDermott & Paul Cashin, 1999. "How Persistent Are Shocks to World Commodity Prices?," IMF Working Papers 99/80, International Monetary Fund.
  6. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, Econometric Society, vol. 55(2), pages 277-301, March.
  7. 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, University of Chicago Press, vol. 91(1), pages 97-125, February.
  8. Serven, Luis, 1999. "Terms-of-trade shocks and optimal investment: another look at the Laursen-Metzler effect," Journal of International Money and Finance, Elsevier, Elsevier, vol. 18(3), pages 337-365.
  9. 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, Elsevier, vol. 7(2), pages 151-174.
  10. Cashin, P. & McDermott, C.J., 1999. "Terms of Trade Shocks and the Current Account," Department of Economics - Working Papers Series, The University of Melbourne 678, The University of Melbourne.
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