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Macroeconomic effects of terms of trade fluctuations in commodity exporting advanced economies

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  • Anthony J. Makin
  • Nicholas Rohde

Abstract

The paper examines the impact of world commodity prices on national output and trade balances in Australia, Canada, New Zealand, and Norway, OECD economies that, unlike other advanced economies, are heavily dependent on commodity exports. Contrary to Dutch disease theory based on real exchange rate adjustment, it highlights the relative price effects of terms of trade (ToT) changes on gross domestic product and net exports with reference to the experience of this unique set of OECD countries. The econometric analysis verifies key predictions of this alternative perspective that ToT fluctuations should (i) have no significant short-run impact on GDP and that (ii) due to relative price effects a strong positive relationship between the ToT and net exports is unlikely.

Suggested Citation

  • Anthony J. Makin & Nicholas Rohde, 2016. "Macroeconomic effects of terms of trade fluctuations in commodity exporting advanced economies," Applied Economics, Taylor & Francis Journals, vol. 48(19), pages 1731-1742, April.
    • Handle: RePEc:taf:applec:v:48:y:2016:i:19:p:1731-1742
    DOI: 10.1080/00036846.2015.1105929
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    References listed on IDEAS

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    1. Jacob Frenkel & Assaf Razin, 1996. "Fiscal Policies and Growth in the World Economy," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262561042, December.
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