Are Shocks to the Terms of Trade Shocks to Productivity?
International trade is frequently thought of as a production technology in which the inputs are exports and the outputs are imports. Exports are transformed into imports at the rate of the price of exports relative to the price of imports: the reciprocal of the terms of trade. Cast this way, a change in the terms of trade acts as a productivity shock. Or does it? In this paper, we show that this line of reasoning cannot work in standard models. Starting with a simple model and then generalizing, we show that changes in the terms of trade have no first-order effect on productivity when output is measured as chain-weighted real GDP. The terms of trade do affect real income and consumption in a country, and we show how measures of real income change with the terms of trade at business cycle frequencies and during financial crises. (Copyright: Elsevier)
Volume (Year): 11 (2008)
Issue (Month): 4 (October)
|Contact details of provider:|| Postal: Marina Azzimonti, Department of Economics, Stonybrook University, 10 Nicolls Road, Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/red/
More information through EDIRC
|Order Information:|| Web: https://www.economicdynamics.org/subscription-information/ Email: |
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.:
- Richard Rogerson & Johanna Wallenius, 2007.
"Micro and Macro Elasticities in a Life Cycle Model With Taxes,"
NBER Working Papers
13017, National Bureau of Economic Research, Inc.
- Rogerson, Richard & Wallenius, Johanna, 2009. "Micro and macro elasticities in a life cycle model with taxes," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2277-2292, November.
- Diewart, W Erwin & Morrison, Catherine J, 1986.
"Adjusting Output and Productivity Indexes for Changes in the Terms of Trade,"
Royal Economic Society, vol. 96(383), pages 659-79, September.
- W. Erwin Diewert & Catherine J. Morrison, 1985. "Adjusting Output and Productivity Indexes for Changes in the Terms of Trade," NBER Working Papers 1564, National Bureau of Economic Research, Inc.
- Timothy J. Kehoe & Kim J. Ruhl, 2008.
"Sudden Stops, Sectoral Reallocations, and the Real Exchange Rate,"
NBER Working Papers
14395, National Bureau of Economic Research, Inc.
- Kehoe, Timothy J. & Ruhl, Kim J., 2009. "Sudden stops, sectoral reallocations, and the real exchange rate," Journal of Development Economics, Elsevier, vol. 89(2), pages 235-249, July.
- Timothy J. Kehoe & Kim J. Ruhl, 2008. "Sudden stops, sectoral reallocations, and the real exchange rate," Staff Report 414, Federal Reserve Bank of Minneapolis.
- Timothy J. Kehoe & Kim J. Ruhl, 2005. "Is Switzerland in a Great Depression?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 759-775, July.
- Feenstra, Robert C. & Heston, Alan & Timmer, Marcel P. & Deng, Haiyan, 2007.
"Estimating real production and expenditures across nations : a proposal for improving the Penn World Tables,"
Policy Research Working Paper Series
4166, The World Bank.
- Robert C. Feenstra & Alan Heston & Marcel P. Timmer & Haiyan Deng, 2009. "Estimating Real Production and Expenditures across Nations: A Proposal for Improving the Penn World Tables," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 201-212, February.
- Feenstra, Robert C. & Heston, Alan & Timmer, Marcel P. & Deng, Haiyan, 2007. "Estimating Real Production and Expenditures Across Nations: A Proposal for Improving the Penn World Tables," GGDC Research Memorandum GD-95, Groningen Growth and Development Centre, University of Groningen.
- Robert C. Feenstra & Alan Heston & Marcel P. Timmer & Haiyan Deng, 2004. "Estimating Real Production and Expenditures Across Nations: A Proposal for Improving the Penn World Tables," NBER Working Papers 10866, National Bureau of Economic Research, Inc.
- Hamilton, James D, 1983. "Oil and the Macroeconomy since World War II," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 228-48, April.
- Kohli, Ulrich, 2004. "Real GDP, real domestic income, and terms-of-trade changes," Journal of International Economics, Elsevier, vol. 62(1), pages 83-106, January.
- Enrique G. Mendoza, 2006. "Endogenous Sudden Stops in a Business Cycle Model with Collateral Constraints:A Fisherian Deflation of Tobin's Q," NBER Working Papers 12564, National Bureau of Economic Research, Inc.
- William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993.
"Good Policy or Good Luck? Country Growth Performance and Temporary Shocks,"
NBER Working Papers
4474, National Bureau of Economic Research, Inc.
- Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
- Felipe Meza & Erwan Quintin, 2005. "Financial crises and total factor productivity," Center for Latin America Working Papers 0105, Federal Reserve Bank of Dallas.
- Richard Blundell & Thomas MaCurdy, 1998.
"Labour supply: a review of alternative approaches,"
IFS Working Papers
W98/18, Institute for Fiscal Studies.
- Paolo Mauro & Torbjorn I. Becker, 2006. "Output Drops and the Shocks That Matter," IMF Working Papers 06/172, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:red:issued:07-40. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann)
If references are entirely missing, you can add them using this form.