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Terms of Trade, the Current Account and Imports of Intermediates and Investment Goods

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  • Søren Bo Nielsen

    (Institute of Economics, University of Copenhagen)

Abstract

This article considers the consequences of a terms of trade deterioration in a small, open economy that imports intermediates and investment goods from abroad. We find that a positive current account effect of a permanent terms of trade deterioration is very likely. As to the effects of a (short-lived) temporary worsening of the trade, the current account effect depends crucially on what is implied by the worsening; specifically: does it involve a change in the price of foreign assets relative to the price of domestic goods?

Suggested Citation

  • Søren Bo Nielsen, 1989. "Terms of Trade, the Current Account and Imports of Intermediates and Investment Goods," Discussion Papers 89-21, University of Copenhagen. Department of Economics.
    • Handle: RePEc:kud:kuiedp:8921
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