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Unprecedented Changes in the Terms of Trade

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  • Mariano Kulish

    (School of Economics, University of New South Wales)

  • Daniel Rees

    (Reserve Bank of Australia)

Abstract

The ongoing development of Asia has led to unprecedented changes in the terms of trade of commodity-exporting economies. Using a small open economy model we estimate changes in the long-run level and variance of Australia's terms of trade and study the quantitative implications of these changes. We find that the long-run prices of commodities that Australia exports started to increase significantly in mid 2003 and that the volatility of shocks to commodity prices doubled soon after. The persistent increase in the level of commodity prices is smaller than single-equation estimates suggest, but our inferences rely on many observables that in general equilibrium also respond to shifts in the long-run level of the terms of trade.

Suggested Citation

  • Mariano Kulish & Daniel Rees, 2015. "Unprecedented Changes in the Terms of Trade," RBA Research Discussion Papers rdp2015-11, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2015-11
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    Cited by:

    1. Daniele Siena, 2021. "The Euro Area Periphery and Imbalances: Is it an Anticipation Story?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 278-308, April.
    2. Alexander Beames & Mariano Kulish & Nadine Yamout, 2022. "Fiscal Policy and the Slowdown in Trend Growth in an Open Economy," Working Papers 143, Red Nacional de Investigadores en Economía (RedNIE).
    3. Daniel M. Rees & Penelope Smith & Jamie Hall, 2016. "A Multi-sector Model of the Australian Economy," The Economic Record, The Economic Society of Australia, vol. 92(298), pages 374-408, September.
    4. Broadbent, Ben & Di Pace, Federico & Drechsel, Thomas & Harrison, Richard & Tenreyro, Silvana, 2019. "The Brexit vote, productivity growth and macroeconomic adjustments in the United Kingdom," Discussion Papers 51, Monetary Policy Committee Unit, Bank of England.
    5. Kenneth Clements & Liang Li, 2017. "Understanding resource investments," Applied Economics, Taylor & Francis Journals, vol. 49(20), pages 1950-1962, April.
    6. Mr. Fabio Comelli & Mrs. Esther Perez Ruiz, 2016. "To Bet or Not to Bet: Copper Price Uncertainty and Investment in Chile," IMF Working Papers 2016/218, International Monetary Fund.
    7. Pablo García & Sindy Olea, 2015. "Inversión Minera y Ajuste Macroeconómico en Australia y Chile," Economic Policy Papers Central Bank of Chile 56, Central Bank of Chile.
    8. Mariano Kulish & Nadine Yamout, 2024. "The Fiscal Arithmetic of a Slowdown in Trend Growth," Working Papers 308, Red Nacional de Investigadores en Economía (RedNIE).
    9. Han Gao & Mariano Kulish & Juan Pablo Nicolini, 2020. "Two Illustrations of the Quantity Theory of Money Reloaded," Working Papers 774, Federal Reserve Bank of Minneapolis.
    10. Miguel Lebre de Freitas, 2023. "Forecasting inflation with excess liquidity and excess depreciation: the case of Angola," Economic Change and Restructuring, Springer, vol. 56(1), pages 473-514, February.
    11. Mardi Dungey & Renee Fry‐Mckibbin & Vladimir Volkov, 2020. "Transmission of a Resource Boom: The Case of Australia," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(3), pages 503-525, June.
    12. Beames, Alexander & Kulish, Mariano & Yamout, Nadine, 2020. "Implications of the Slowdown in Trend Growth for Fiscal Policy in a Small Open Economy," Working Papers 2020-17, University of Sydney, School of Economics.
    13. Gomez-Gonzalez, Patricia & Rees, Daniel M., 2018. "Same Spain, less pain?," European Economic Review, Elsevier, vol. 110(C), pages 78-107.
    14. Adam Gorajek & Daniel Rees, 2015. "Lower Bulk Commodity Prices and Their Effect on Economic Activity," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 31-38, September.
    15. Christopher G. Gibbs & Jonathan Hambur & Gabriela Nodari, 2021. "Housing and Commodity Investment Booms in a Small Open Economy," The Economic Record, The Economic Society of Australia, vol. 97(317), pages 212-242, June.
    16. Renée Fry-McKibbin & Rodrigo da Silva Souza, 2018. "Chinese resource demand or commodity price shocks: Macroeconomic effects for an emerging market economy," CAMA Working Papers 2018-45, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    17. Fabrice Nzepang & Saturnin Bertrand Nguenda Anya, 2022. "Effects of ICTs on the Terms of Trade of Sub-Saharan African Economies," Journal of African Trade, Springer, vol. 9(1), pages 107-119, December.

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    More about this item

    Keywords

    Bayesian analysis; open economy macroeconomics; terms of trade;
    All these keywords.

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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