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The Terms of Trade and Economic Fluctuations [electronic resource] / Enrique G Mendoza.

By: Mendoza, Enrique G.
Material type: materialTypeLabelBookSeries: IMF Working Papers; Working Paper: No. 92/98Publisher: Washington, D.C. : International Monetary Fund, 1992Description: 1 online resource (72 p.).ISBN: 1451852061 :.ISSN: 1018-5941.Subject(s): Correlation | Import Prices | Standard Deviation | Statistics | Terms of Trade | Algeria | Cameroon | Canada | Mexico | United StatesAdditional physical formats: Print Version:: The Terms of Trade and Economic FluctuationsOnline resources: IMF e-Library | IMF Book Store Abstract: A three-good, stochastic intertemporal equilibrium model of a small open economy is used to examine the link between terms of trade and business cycles. Equilibrium co-movements of model economies representing industrial and developing countries are computed and compared with the stylized facts of 30 countries. The results show that terms-of-trade shocks account for half of observed output variability and that the model mimics the Harberger-Laursen-Metzler effect and produces large deviations from purchasing power parity. The elasticity of substitution between tradable and nontradable goods and the persistence of the shocks play a key role in producing these results.
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A three-good, stochastic intertemporal equilibrium model of a small open economy is used to examine the link between terms of trade and business cycles. Equilibrium co-movements of model economies representing industrial and developing countries are computed and compared with the stylized facts of 30 countries. The results show that terms-of-trade shocks account for half of observed output variability and that the model mimics the Harberger-Laursen-Metzler effect and produces large deviations from purchasing power parity. The elasticity of substitution between tradable and nontradable goods and the persistence of the shocks play a key role in producing these results.

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