This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Terms of Trade Shocks in an Intertemporal Model: Should We Worry about the Dutch Disease or Excessive Borrowing?

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Kuralbayeva, Karlygash
Vines, David

Additional information is available for the following registered author(s):

Abstract

This paper analyzes the impact of terms of trade and risk-premium shocks on a small open economy in an intertemporal, Dutch disease model, with international capital mobility. It is shown that when the economy experiences a permanent improvement in the terms of trade, the Dutch disease effect (real exchange rate appreciation) goes away in the new steady state, while the economy experiences de-industrialization even stronger than in the short-run. Second, a permanent improvement in the terms of trade coupled with a permanent reduction in the risk-premium leads to pro-industrialization and a real exchange rate appreciation. The mechanism behind appreciation of the real exchange rate in the long-run is different from the Dutch disease story. It occurs because reduction in the risk-premium reduces the costs of the production in the economy, and because (non-oil) traded sector benefits more from cheaper capital than the non-traded sector. The economy also accumulates more debt in response to these two shocks in the long-run.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.cepr.org/pubs/dps/DP5857.asp
File Format: application/pdf
File Function:
Download Restriction: CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Publisher Info
Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 5857.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length:
Date of creation: Oct 2006
Date of revision:
Handle: RePEc:cpr:ceprdp:5857

Contact details of provider:
Postal: Centre for Economic Policy Research, 53--56 Great Sutton Street, London EC1V 0DG
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820

Order Information:
Email:

For technical questions regarding this item, or to correct its listing, contact: ().

Related research
Keywords: capital inflows; Dutch disease; external debt; optimizing models; overborrowing; real exchange rate;

Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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. Woodford, Michael, 2005. "Firm-Specific Capital and the New Keynesian Phillips Curve," MPRA Paper 825, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  2. Gylfason, Thorvaldur & Herbertsson, Tryggvi Thor & Zoega, Gylfi, 1997. "A Mixed Blessing: Natural Resources and Economic Growth," CEPR Discussion Papers 1668, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  3. Mart´in Uribe & Vivian Z. Yue, 2003. "Country spreads and emerging countries," Pacific Basin Working Paper Series 2004-32, Federal Reserve Bank of San Francisco. [Downloadable!]
  4. Schmitt-Grohé, Stephanie & Uribe, Martín, 2002. "Closing Small Open Economy Models," CEPR Discussion Papers 3096, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  5. Jeffrey D. Sachs & Andrew M. Warner, 1995. "Natural Resource Abundance and Economic Growth," NBER Working Papers 5398, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Corden, W M, 1984. "Booming Sector and Dutch Disease Economics: Survey and Consolidation," Oxford Economic Papers, Oxford University Press, vol. 36(3), pages 359-80, November. [Downloadable!] (restricted)
  7. Reinhart, Carmen & Ostry, Jonathan, 1992. "Saving and Terms of Trade Shocks: Evidence from Developing Countries," MPRA Paper 6976, University Library of Munich, Germany. [Downloadable!]
  8. Robert E. Hall, 2002. "Industry Dynamics with Adjustment Costs," NBER Working Papers 8849, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Roberto Garcia-Saltos & Leonardo Auernheimer, 2000. "International Debt and the Price of Domestic Assets," IMF Working Papers 00/177, International Monetary Fund.
  10. Saqib Rizavi & Mariano Cortes & Ydahlia A. Metzgen Quemarez & Francesca Fornasari & Benoit Ketchekmen & R. Brooks & Robert Powell & Doris C. Ross & Kevin Ross, 1998. "External Debt Histories of Ten Low-Income Developing Countries - Lessons from Their Experience," IMF Working Papers 98/72, International Monetary Fund.
  11. Devereux, Michael B & Lane, Philip R., 2001. "Exchange Rates and Monetary Policy in Emerging Market Economies," CEPR Discussion Papers 2874, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  12. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank. [Downloadable!]
  13. Agenor, Pierre-Richard, 1998. "Capital inflows, external shocks, and the real exchange rate," Journal of International Money and Finance, Elsevier, vol. 17(5), pages 713-740, October. [Downloadable!] (restricted)
  14. repec:cup:macdyn:v:3:y:1999:i:2:p:204-25 is not listed on IDEAS
  15. Sachs, J-D & Warner, A-M, 1995. "Natural Resource Abundance and Economic Growth," Papers 517a, Harvard - Institute for International Development.
  16. Marcela Meirelles-Aurelio, 2005. "The performance of monetary and fiscal rules in an open economy with imperfect capital mobility," Research Working Paper RWP 05-01, Federal Reserve Bank of Kansas City. [Downloadable!]
  17. Serven, Luis, 1995. "Capital goods imports, the real exchange rate and the current account," Journal of International Economics, Elsevier, vol. 39(1-2), pages 79-101, August. [Downloadable!] (restricted)
    Other versions:
  18. Turnovsky, Stephen J, 1997. "Equilibrium Growth in a Small Economy Facing an Imperfect World Capital Market," Review of Development Economics, Blackwell Publishing, vol. 1(1), pages 1-22, February. [Downloadable!] (restricted)
  19. Charlotta Groth, . "Estimating UK capital adjustment costs," Bank of England working papers 258, Bank of England. [Downloadable!]
  20. Neary, Peter J & Purvis, Douglas D, 1981. "Real Adjustment and Exchange-rate Dynamics," The Warwick Economics Research Paper Series (TWERPS) 203, University of Warwick, Department of Economics.
    Other versions:
  21. Cristina Arellano & Enrique G. Mendoza, 2002. "Credit Frictions and 'Sudden Stops' in Small Open Economies: An Equilibrium Business Cycle Framework for Emerging Markets Crises," NBER Working Papers 8880, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-48, December. [Downloadable!] (restricted)
  23. Sachs, Jeffrey D. & Warner, Andrew M., 2001. "The curse of natural resources," European Economic Review, Elsevier, vol. 45(4-6), pages 827-838, May. [Downloadable!] (restricted)
  24. Jonathan David Ostry & Carmen Reinhart, 1991. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Working Papers 91/100, International Monetary Fund.
  25. Abdelhak S. Senhadji, 2003. "External Shocks and Debt Accumulation in a Small Open Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 207-239, January. [Downloadable!] (restricted)
  26. Enrique G. Mendoza, 2001. "Credit, Prices, and Crashes: Business Cycles with a Sudden Stop," NBER Working Papers 8338, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  27. Mansoorian, Arman, 1991. "Resource Discoveries and 'Excessive' External Borrowing," Economic Journal, Royal Economic Society, vol. 101(409), pages 1497-509, November. [Downloadable!] (restricted)
Full references

Cited by:
(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. Kirsanova, Tatiana & Menzies, Gordon & Vines, David, 2007. "Stiglitz Versus the IMF on the Asian Debt Crisis: An Intertemporal Model with Real Exchange Rate Overshooting," CEPR Discussion Papers 6318, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  2. Karlygash Kuralbayeva, 2007. "Inflation persistence: Implications for a design of monetary policy in a small open economy subject to external shocks," CEIS Research Paper 93, Tor Vergata University, CEIS. [Downloadable!]
Statistics
Access and download statistics

Did you know? You may want to explore EconPapers, which displays the same data as IDEAS in a different way.

This page was last updated on 2009-11-25.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.