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Commodity terms of trade news and country spreads in emerging economies

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  • Liu, Jia
  • Baek, Ingul
  • Noh, Sanha

Abstract

This paper examines the dynamic relationship between commodity terms of trade (CTOT) news shocks and country spreads in commodity-exporting emerging economies. Using a VAR model and shock identification approach based on Uhlig (2003), we show that positive CTOT news shocks lead to significant and persistent increases in output, consumption, and investment, accompanied by reductions in country spreads. Our analysis reveals that country spread shocks largely reflect information about future movements in CTOT. Country-specific results highlight heterogeneity, with stronger correlations between these shocks observed in Argentina, Peru, and Colombia compared to Brazil and Chile. Our findings emphasize that financial frictions potentially play a role in propagating CTOT news shocks in commodity-exporting emerging economies.

Suggested Citation

  • Liu, Jia & Baek, Ingul & Noh, Sanha, 2025. "Commodity terms of trade news and country spreads in emerging economies," Economics Letters, Elsevier, vol. 256(C).
    • Handle: RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004410
    DOI: 10.1016/j.econlet.2025.112604
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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