Terms of Trade and Output Fluctuations in Colombia
AbstractThis paper explores the importance of the terms of trade to explain output fluctuations in Colombia, a developing country where almost 60% of the exports correspond to four commodities: oil (32%), coal (17%), coffee (5%) and nickel (2%), and where 80% of its imports are intermediate and capital goods. This research is motivated fundamentally by the particular importance of short run fluctuations in developing economies, the fact that the Colombian terms of trade are procyclical and the current debate in Colombia about eventual economic policies toward sterilization of the effects of changes in commodities prices in a context of an appreciation of the nominal exchange rate. The study includes a time series analysis, for the period 1994-2009 with quarterly data, which follows the Box-Jenkins methodology for an ARMAX model. I find robust evidence that indicates that the quarterly growth of GDP is positively and significantly affected by variations in the terms of trade, which explain 1/3 of GDP growth variability. This result is consistent with the possible outcome of the three-goods model for an open small economy in which the terms of trade can be the source of the aggregate output fluctuations. JEL Categories:
Download InfoIf 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.
Bibliographic InfoPaper provided by University of Massachusetts Amherst, Department of Economics in its series UMASS Amherst Economics Working Papers with number 2011-04.
Date of creation: Feb 2011
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-HME-2011-03-05 (Heterodox Microeconomics)
- NEP-INT-2011-03-05 (International Trade)
- NEP-OPM-2011-03-05 (Open Economy Macroeconomics)
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.:
- Lavan Mahadeva & Javier Gómez Pineda, 2009.
"The international cycle and Colombian monetary policy,"
BORRADORES DE ECONOMIA
005406, BANCO DE LA REPÚBLICA.
- Lavan Mahadeva & Javier Gómez Pineda, . "The international cycle and Colombian monetary policy," Borradores de Economia 557, Banco de la Republica de Colombia.
- International Monetary Fund, 2009. "Commodity Terms of Trade," IMF Working Papers 09/205, International Monetary Fund.
- Jose Antonio Ocampo & Maria Angela Parra, 2004. "The Terms Of Trade For Commodities In The Twentieth Century," International Trade 0402006, EconWPA.
- Jeremy Greenwood, 1984. "Non-traded Goods, the Trade Balance, and the Balance of Payments," Canadian Journal of Economics, Canadian Economics Association, vol. 17(4), pages 806-23, November.
- M. Ayhan Kose & Raymond Riezman, 1999.
"Trade Shocks and Macroeconomic Fluctuations in Africa,"
CSGR Working papers series
43/99, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
- Kose, M. Ayhan & Riezman, Raymond, 2001. "Trade shocks and macroeconomic fluctuations in Africa," Journal of Development Economics, Elsevier, vol. 65(1), pages 55-80, June.
- M. Ayhan Kose & Raymond Riezman, 1999. "Trade Shocks and Macroeconomic Fluctuations in Africa," CESifo Working Paper Series 203, CESifo Group Munich.
- Scott, Andrew, 1996.
"The Determinants of UK Business Cycles,"
CEPR Discussion Papers
1409, C.E.P.R. Discussion Papers.
- Raddatz, Claudio, 2007.
"Are external shocks responsible for the instability of output in low-income countries?,"
Journal of Development Economics,
Elsevier, vol. 84(1), pages 155-187, September.
- Raddatz, Claudio, 2005. "Are external shocks responsible for the instability of output in low income countries?," Policy Research Working Paper Series 3680, The World Bank.
- Alexander W. Hoffmaister, 1997.
"Macroeconomic Fluctuations in Sub-Saharan Africa,"
IMF Working Papers
97/82, International Monetary Fund.
- C. John McDermott & Eswar Prasad & Pierre-Richard AgÃ©nor, 1999. "Macroeconomic Fluctuations in Developing Countries," IMF Working Papers 99/35, International Monetary Fund.
- Blattman, Christopher & Hwang, Jason & Williamson, Jeffrey G., 2007. "Winners and losers in the commodity lottery: The impact of terms of trade growth and volatility in the Periphery 1870-1939," Journal of Development Economics, Elsevier, vol. 82(1), pages 156-179, January.
- Basu, Parantap & McLeod, Darryl, 1991. "Terms of trade fluctuations and economic growth in developing economies," Journal of Development Economics, Elsevier, vol. 37(1-2), pages 89-110, November.
- Juan Carlos Parra Alvarez, 2008.
"Hechos Estilizados de la Economía Colombiana:Fundamentos Empíricos para la Construcción y Evaluación de un Modelo DSGE,"
BORRADORES DE ECONOMIA
004602, BANCO DE LA REPÚBLICA.
- Juan Carlos Parra Alvarez, . "Hechos estilizados de la economía colombiana: fundamentos empíricos para la construcción y evaluación de un modelo DSGE," Borradores de Economia 509, Banco de la Republica de Colombia.
- Rand, John & Tarp, Finn, 2002. "Business Cycles in Developing Countries: Are They Different?," World Development, Elsevier, vol. 30(12), pages 2071-2088, December.
- Carmen M. Reinhart & Vincent R. Reinhart, 1991.
"Output Fluctuations and Monetary Shocks: Evidence from Colombia,"
IMF Staff Papers,
Palgrave Macmillan, vol. 38(4), pages 705-735, December.
- Reinhart, Carmen & Reinhart, Vincent, 1991. "Output Fluctuations and Monetary Shocks: Evidence from Colombia," MPRA Paper 6980, University Library of Munich, Germany.
- Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," World Bank Economic Review, World Bank Group, vol. 14(2), pages 251-85, May.
- Hoffmaister, Alexander W. & Roldos, Jorge E., 2001. "The Sources of Macroeconomic Fluctuations in Developing Countries: Brazil and Korea," Journal of Macroeconomics, Elsevier, vol. 23(2), pages 213-239, April.
- Paul Cashin & Christopher J. Kent, 2003. "The Response of the Current Account to Terms of Trade Shocks," IMF Working Papers 03/143, International Monetary Fund.
- Ahmed, Shaghil, 2003. "Sources of economic fluctuations in Latin America and implications for choice of exchange rate regimes," Journal of Development Economics, Elsevier, vol. 72(1), pages 181-202, October.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Saunders).
If references are entirely missing, you can add them using this form.