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Terms-of-Trade Shocks and Slovak Economy

Listed author(s):
  • Martin Lukáčik


    (University of Economics in Bratislava)

  • Karol Szomolányi


    (University of Economics in Bratislava)

  • Adriana Lukáčiková


    (University of Economics in Bratislava)

Using the structural vector auto-regression analysis of the terms-of-trade, trade balance, output, consumption and investment cyclical components we show that the relationship between the terms-of-trade and trade balance is negative and that the terms-of-trade shocks explain only a small fraction of business cycles in the Slovak economy. We use quarterly data in constant prices in the period 1997-2014. The results are in line with the theoretical and empirical studies in the contemporary world economic literature. The negative relationship between the terms-of-trade and the trade balance confirms a theoretical Obstfeld-Svensson-Razin effect. The positive effect of a change in the terms-of-trade on the trade balance - so called Harberger-Laursen-Metzler effect - is the smaller, the more persistent terms-of-trade shocks are. By capital adjustment costs, the theoretical effect may be even negative. A modest contribution of the terms-of-trade shocks to the business-cycle fluctuations in Slovakia is in line with other empirical papers around the world.

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Article provided by University of South Bohemia in Ceske Budejovice in its journal Acta Universitatis Bohemiae Meridionales.

Volume (Year): 19 (2016)
Issue (Month): 1 ()
Pages: 10-19

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Handle: RePEc:boh:actaub:v:19:y:2016:i:1:p:10-19
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