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Terms of Trade Shocks and Fiscal Cycles

  • Graciela L. Kaminsky

The latest boom in commodity prices fueled concerns about fiscal policies in commodity-exporting countries, with many claiming that it triggered loose fiscal policy and left no funds for a rainy day. This paper examines the links between fiscal policy and terms-of-trade fluctuations using a sample of 74 countries, both developed and developing. It finds evidence that booms in the terms of trade do not necessarily lead to larger government surpluses in developing countries, particularly in emerging markets and especially during capital flow bonanzas. This is not the case in OECD countries, where fiscal policy is of an acyclical nature.

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File URL: http://www.nber.org/papers/w15780.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15780.

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Date of creation: Feb 2010
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Publication status: published as Graciela L Kaminsky, 2010. "Terms of Trade Shocks and Fiscal Cycles," RBA Annual Conference Volume, in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.
Handle: RePEc:nbr:nberwo:15780
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