Terms-of-Trade Shocks are Not all Alike

Terms-of-Trade Shocks are Not all Alike
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Volume/Issue: Volume 2020 Issue 280
Publication date: December 2020
ISBN: 9781513563916
$18.00
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Topics covered in this book

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Exports and Imports , Economics- Macroeconomics , Commodity Prices , Business Cycles , World Shocks , WP , price shock , terms-of-trade shock , import share , export share , export price shock , import price shock , share exhibit

Summary

When analyzing terms-of-trade shocks, it is implicitly assumed that the economy responds symmetrically to changes in export and import prices. Using a sample of developing countries our paper shows that this is not the case. We construct export and import price indices using commodity and manufacturing price data matched with trade shares and separately identify export price, import price, and global economic activity shocks using sign and narrative restrictions. Taken together, export and import price shocks account for around 40 percent of output fluctuations but export price shocks are, on average, twice as important as import price shocks for domestic business cycles.