Advanced Search
MyIDEAS: Login to save this paper or follow this series

The Consumption Terms of Trade and Commodity Prices

Contents:

Author Info

  • Martin Berka

    ()

  • Mario J. Crucini

    ()

Abstract

Movements in a nation's terms of trade are widely viewed as important for the understanding the sources of business cycle fluctuations, the dynamics of the trade balance and economic welfare. Backus, Kehoe and Kydland (1994) emphasize the role of productivity movements in a two-country, two-good setting. In their model an increase in domestic productivity expands out- put at home relative to output abroad and the terms of trade deteriorates. Put differently: a large country expanding the supply of the traded good it produces must (in equilibrium) drive down the relative price of its prod- ucts on world markets. The importing country's terms of trade improves, a positive spillover. Backus and Crucini (2000) add a third region to this model; a region that specializes in oil production. When the oil region cuts back production, the relative price of oil rises, a terms of trade improvement for oil producers. Output falls in the oil importing regions because oil is an intermediate input into production of the two manufactured goods produced in those regions. The business cycle implications of this model are consis- tent with empirical work by Hamilton (1983) showing oil price increases in advance of U.S. recessions. Mendoza (1995) studies the terms of trade and business cycles in an extensive cross-country panel using a partial equilibrium business cycle model where terms of trade movements are exogenous. In his theoretical setting, terms of trade shocks are analogous to lotteries with the sign and magnitude of the payout dependent upon a country's pattern of specialization across an array of internationally traded goods.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. 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://cbe.anu.edu.au/research/papers/camawpapers/Papers/2010/Berka_Crucini_272010.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Cama Admin)
Download Restriction: no

Bibliographic Info

Paper provided by Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University in its series CAMA Working Papers with number 2010-27.

as in new window
Length: 52 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:een:camaaa:2010-27

Contact details of provider:
Postal: Crawford Building, Lennox Crossing, Building #132, Canberra ACT 0200
Phone: +61 2 6125 4705
Fax: +61 2 6125 5448
Email:
Web page: http://cama.crawford.anu.edu.au
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

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.:
as in new window
  1. Hadass, Yael S & Williamson, Jeffrey G, 2003. "Terms-of-Trade Shocks and Economic Performance, 1870-1940: Prebisch and Singer Revisited," Economic Development and Cultural Change, University of Chicago Press, vol. 51(3), pages 629-56, April.
  2. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, vol. 54(3), pages 785-796, April.
  3. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
  4. David K. Backus & Mario J. Crucini, 1998. "Oil Prices and the Terms of Trade," NBER Working Papers 6697, National Bureau of Economic Research, Inc.
  5. Jeffrey Frankel & David Parsley & Shang-Jin Wei, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Open Economies Review, Springer, vol. 23(2), pages 213-251, April.
  6. 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.
  7. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:een:camaaa:2010-27. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Cama Admin).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.