{
  "title": "The Terms of Trade and Economic Fluctuations",
  "publication": "IMF Working Papers, November 1, 1992",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/the-terms-of-trade-and-economic-fluctuations-848",
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  "summary": "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.",
  "sections": [
    {
      "heading": "Summary",
      "content": "- 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.\n- Equilibrium co-movements of model economies representing industrial and developing countries are computed and compared with the stylized facts of 30 countries.\n- 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.\n- The elasticity of substitution between tradable and nontradable goods and the persistence of the shocks play a key role in producing these results."
    },
    {
      "heading": "Model and Methodology",
      "content": "- Model type: three-good, stochastic intertemporal equilibrium model of a small open economy.\n- Comparative approach: model economies representing industrial and developing countries.\n- Empirical benchmark: stylized facts of 30 countries."
    },
    {
      "heading": "Main Findings and Results",
      "content": "- Terms-of-trade shocks account for half of observed output variability.\n- The model mimics the Harberger-Laursen-Metzler effect.\n- The model produces large deviations from purchasing power parity.\n- Key parameters influencing results:\n  - The elasticity of substitution between tradable and nontradable goods.\n  - The persistence of the shocks."
    },
    {
      "heading": "Subjects and Keywords (as listed)",
      "content": "- Subject: Business cycles, Consumption, Economic growth, Import prices, International trade, National accounts, Prices, Terms of trade, Trade balance\n- Keywords: Africa, Asia and Pacific, Business cycles, Consumption, form terms of trade, Import prices, Middle East, open economy, real GDP, standard deviation, Terms of trade, terms-of-trade disturbance, terms-of-trade effect, terms-of-trade shock, Trade balance, U.S. dollar, Western Hemisphere, WP\n\n---\n\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-terms-of-trade-and-economic-fluctuations-848"
    }
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    "Authors: Enrique G. Mendoza",
    "Published: November 1, 1992",
    "Series: IMF Working Papers",
    "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.",
    "Model type: three-good, stochastic intertemporal equilibrium model of a small open economy.",
    "Comparative approach: model economies representing industrial and developing countries.",
    "Empirical benchmark: stylized facts of 30 countries.",
    "Terms-of-trade shocks account for half of observed output variability.",
    "The model mimics the Harberger-Laursen-Metzler effect.",
    "The model produces large deviations from purchasing power parity.",
    "Key parameters influencing results:",
    "Subject: Business cycles, Consumption, Economic growth, Import prices, International trade, National accounts, Prices, Terms of trade, Trade balance",
    "Keywords: Africa, Asia and Pacific, Business cycles, Consumption, form terms of trade, Import prices, Middle East, open economy, real GDP, standard deviation, Terms of trade, terms-of-trade disturbance, terms-of-trade effect, terms-of-trade shock, Trade balance, U.S. dollar, Western Hemisphere, WP"
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