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Unprecedented changes in the terms of trade

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  • Kulish, Mariano
  • Rees, Daniel M.

Abstract

The development of Asia exposed commodity-exporting economies to unprecedented changes in their terms of trade. Using a small open economy model we estimate changes in the long-run level and variance of Australia's terms of trade and study the quantitative implications of these changes. An innovation of our analysis is to account in estimation for structural changes in the terms of trade. We find that long-run commodity prices increased by 35% in mid-2003 and that the volatility of shocks to commodity prices doubled soon after. The increase in the level of commodity prices is much smaller than single-equation estimates suggest. This is because our inferences rely on many observables that in general equilibrium also respond to shifts in the long-run level of the terms of trade.

Suggested Citation

  • Kulish, Mariano & Rees, Daniel M., 2017. "Unprecedented changes in the terms of trade," Journal of International Economics, Elsevier, vol. 108(C), pages 351-367.
    • Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:351-367
    DOI: 10.1016/j.jinteco.2017.07.005
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    Cited by:

    1. Mardi Dungey & Renee Fry‐Mckibbin & Vladimir Volkov, 2020. "Transmission of a Resource Boom: The Case of Australia," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(3), pages 503-525, June.
    2. Daniele Siena, . "The Euro Area Periphery and Imbalances: Is it an Anticipation Story?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics.
    3. Pablo García & Sindy Olea, 2015. "Inversión Minera y Ajuste Macroeconómico en Australia y Chile," Economic Policy Papers Central Bank of Chile 56, Central Bank of Chile.
    4. Broadbent, Ben & Di Pace, Federico & Drechsel, Thomas & Harrison, Richard & Tenreyro, Silvana, 2019. "The Brexit vote, productivity growth and macroeconomic adjustments in the United Kingdom," Discussion Papers 51, Monetary Policy Committee Unit, Bank of England.
    5. Daniel M. Rees & Penelope Smith & Jamie Hall, 2016. "A Multi-sector Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 92(298), pages 374-408, September.
    6. Fabio Comelli & Esther Perez Ruiz, 2016. "To Bet or Not to Bet; Copper Price Uncertainty and Investment in Chile," IMF Working Papers 16/218, International Monetary Fund.
    7. Renée Fry-McKibbin & Rodrigo da Silva Souza, 2018. "Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy," CAMA Working Papers 2018-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    8. Kenneth Clements & Liang Li, 2017. "Understanding resource investments," Applied Economics, Taylor & Francis Journals, vol. 49(20), pages 1950-1962, April.
    9. Gomez-Gonzalez, Patricia & Rees, Daniel M., 2018. "Same Spain, less pain?," European Economic Review, Elsevier, vol. 110(C), pages 78-107.
    10. Adam Gorajek & Daniel Rees, 2015. "Lower Bulk Commodity Prices and Their Effect on Economic Activity," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 31-38, September.
    11. , 2020. "Two Illustrations of the Quantity Theory of Money Reloaded," Working Papers 774, Federal Reserve Bank of Minneapolis.

    More about this item

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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