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What Can Account for Fluctuations in the Terms of Trade?

Author

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  • Marianne Baxter

    () (Institute for Economic Development, Boston University)

  • Michael A. Kouparitsas

    (Federal Reserve Bank of Chicago)

Abstract

This paper studies the sources of terms of trade volatility. We decompose the terms of trade into two components. The 'goods price' component stems from differences in the composition of import and export baskets, while the 'country price' component stems from deviations from the law of one price. Countries are classified according to their major import and export goods: commodities, manufactured goods and fuels. Except fuel exporters, there is roughly equal importance of goods price vs country price volatility. These results suggest that there may be a role for reducing terms of trade volatility through diversification of a country's exports. Copyright 2006 Blackwell Publishing Ltd.
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Suggested Citation

  • Marianne Baxter & Michael A. Kouparitsas, 2000. "What Can Account for Fluctuations in the Terms of Trade?," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-112, Boston University - Department of Economics.
  • Handle: RePEc:bos:iedwpr:dp-112
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    File URL: http://www.bu.edu/econ/ied/dp/papers/totdec20001.pdf
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    References listed on IDEAS

    as
    1. Engel, Charles, 1993. "Real exchange rates and relative prices : An empirical investigation," Journal of Monetary Economics, Elsevier, vol. 32(1), pages 35-50, August.
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    8. Michael A. Kouparitsas, 1996. "North-South business cycles," Working Paper Series, Macroeconomic Issues WP-96-9, Federal Reserve Bank of Chicago.
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    More about this item

    Keywords

    Terms of Trade; International business cycles;

    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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