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Emerging economies business cycles: The role of commodity terms of trade news

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  • Ben Zeev, Nadav
  • Pappa, Evi
  • Vicondoa, Alejandro

Abstract

Recent empirical work has challenged the hypothesis that terms-of-trade shocks are an important source of cyclical fluctuations in emerging economies. We show that ignoring the news component in the terms-of-trade movements results in misleading conclusions about their importance as a source of cyclical fluctuations. Using a sample of Latin American countries, we identify news-augmented Commodity-terms-of-trade (CTOT) shocks by maximizing the forecast error variance share of the CTOT series at a finite future horizon. Our identification does not rely on zero impact restrictions typically used in the literature for recovering news shocks. Accounting for news almost doubles the contribution of CTOT to explain cyclical fluctuations: news-augmented CTOT shocks explain almost half of output variations in emerging economies.

Suggested Citation

  • Ben Zeev, Nadav & Pappa, Evi & Vicondoa, Alejandro, 2017. "Emerging economies business cycles: The role of commodity terms of trade news," Journal of International Economics, Elsevier, vol. 108(C), pages 368-376.
  • Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:368-376
    DOI: 10.1016/j.jinteco.2017.07.008
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    Cited by:

    1. Drechsel, Thomas & Tenreyro, Silvana, 2018. "Commodity booms and busts in emerging economies," Journal of International Economics, Elsevier, vol. 112(C), pages 200-218.
    2. Yang Liu & Liyan Han & Libo Yin, 2018. "Does news uncertainty matter for commodity futures markets? Heterogeneity in energy and non‐energy sectors," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(10), pages 1246-1261, October.
    3. David Kohn & Fernando Leibovici & Håkon Tretvoll, 2021. "Trade in Commodities and Business Cycle Volatility," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(3), pages 173-208, July.
    4. Ashima Goyal & Abhishek Kumar, 2019. "News, noise and Indian business cycle," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2019-010, Indira Gandhi Institute of Development Research, Mumbai, India.
    5. Dvorkin, Maximiliano & Sánchez, Juan M. & Sapriza, Horacio & Yurdagul, Emircan, 2020. "News, sovereign debt maturity, and default risk," Journal of International Economics, Elsevier, vol. 126(C).
    6. Vicondoa, Alejandro, 2019. "Monetary news in the United States and business cycles in emerging economies," Journal of International Economics, Elsevier, vol. 117(C), pages 79-90.
    7. Jorge Carrera & Blaise Gnimassoun & Val'{e}rie Mignon & Romain Restout, 2021. "Currency Misalignments and Exchange Rate Regimes in Latin American Countries: A Trade-Off Issue," Annals of Economics and Statistics, GENES, issue 141, pages 71-102.
    8. Hem C. Basnet & Satis C. Devkota & Mukti P. Upadhyay, 2021. "Terms of trade and real domestic income: New evidence from South and Southeast Asia," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4315-4331, July.
    9. Ivan Khotulev & Konstantin Styrin, 2020. "Optimal Monetary and Macroprudential Policies for Financial Stability in a Commodity-Exporting Economy," Russian Journal of Money and Finance, Bank of Russia, vol. 79(2), pages 3-42, June.
    10. 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.
    11. Ma, Xiaohan, 2018. "Investment specific technology, news, sentiment, and fluctuations: Evidence from nowcast data," Journal of Macroeconomics, Elsevier, vol. 57(C), pages 55-70.

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    More about this item

    Keywords

    Commodity terms of trade; Business cycles; News shocks; Maximum forecast error variance; Small open economy;
    All these keywords.

    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

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