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

The national terms of trade, defined as the ratio of an export price index to an import price index has been extensively studied empirically. In this paper we construct an alternative measure, which we call the consumption terms of trade. This measure recognizes the fact that consumers and firms face different prices for the same items and consume different items. Using micro-data from the Economist Intelligence Unit at the retail level, we conduct a forensic analysis of the variation of the terms of trade of 38 countries. Using a novel variance decomposition method, we find that the bulk of terms of trade variation is accounted for by oil, automobiles and medicine. The other goods in our construct tend to exhibit balanced trade, providing a natural hedge against world price fluctuations. We find the consumption terms of trade at local prices is more volatile than at world prices, but the two are strongly positively correlated. The same commodities dominate the variance decomposition in both constructs, but variance shifts from oil to medicine, when local prices are used, presumably due to larger LOP deviations in the latter than the former. The significant differences in time paths of producer (conventional) and consumer terms of trade suggests the need to adapt the elasticities approach to trade balance adjustment to recognize different prices and baskets at the consumer and producer level.

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://www.nber.org/papers/w15580.pdf
Download Restriction: no

Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15580.

as in new window
Length:
Date of creation: Dec 2009
Date of revision:
Publication status: published as The Consumption Terms of Trade and Commodity Prices , Martin Berka, Mario J. Crucini. in Commodity Prices and Markets, East Asia Seminar on Economics, Volume 20 , Ito and Rose. 2011
Handle: RePEc:nbr:nberwo:15580

Note: IFM
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Email:
Web page: http://www.nber.org
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

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. Yael S. Hadass & Jeffrey G. Williamson, 2001. "Terms of Trade Shocks and Economic Performance 1870-1940: Prebisch and Singer Revisited," NBER Working Papers 8188, National Bureau of Economic Research, Inc.
  2. Backus, David K. & Crucini, Mario J., 2000. "Oil prices and the terms of trade," Journal of International Economics, Elsevier, Elsevier, vol. 50(1), pages 185-213, February.
  3. Frankel, Jeffrey A. & Wei, Shang-jin & Parsley, David, 2012. "Slow Pass-through Around the World: A New Import for Developing Countries?," Scholarly Articles 10494212, Harvard Kennedy School of Government.
  4. 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, American Economic Association, vol. 84(1), pages 84-103, March.
  5. Rogers, John H., 2007. "Monetary union, price level convergence, and inflation: How close is Europe to the USA?," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(3), pages 785-796, April.
  6. Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(2), pages 228-48, April.
  7. 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, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
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:nbr:nberwo:15580. 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: ().

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.