Download or read book The Response of the Current Account to Terms of Trade Shocks written by Christopher J. Kent and published by International Monetary Fund. This book was released on 2003-07-01 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Is the relationship between the current account balance and the terms of trade affected by the persistence of terms of trade shocks? In intertemporal models of the current account that incorporate a consumption-smoothing and an investment response to shocks, the effect of the terms of trade on external balances is predicted to be dependent on the duration of terms of trade shocks. Using a median-unbiased estimator, an unbiased model-selection rule, and terms of trade data for 128 countries over the period 1960-99 we identify two groups of countries-those that typically experience temporary terms of trade shocks and those that typically experience permanent terms of trade shocks. The results from panel-data regressions of the two groups of countries support the theoretical predictions of the intertemporal approach to the current account. We find that the greater (lesser) the persistence of the terms of trade shock, the more (less) the investment effect dominates the consumption-smoothing effect on saving, so that the current account balance moves in the opposite (same) direction as that of the shock.
Download or read book The Response of the Current Account to Terms of Trade Shocks written by Christopher Kent and published by . This book was released on 1997 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper demonstrates that the response of the current account to shocks depends on the degree of persistence of these shocks. This result is in accordance with standard intertemporal models that incorporate both consumption smoothing and an investment response to shocks. The estimation procedure used to test this result takes advantage of the fact that the persistence of the terms of trade varies greatly across countries. Countries with the least persistent terms of trade shocks are shown to exhibit a positive relationship between these shocks and the current account; countries with the most persistent terms of trade shocks are shown to exhibit a negative relationship.
Download or read book Terms of Trade Shocks and the Current Account written by Mr.Paul Cashin and published by International Monetary Fund. This book was released on 1998-12-01 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between terms of trade shocks, private saving, and the current account position. The relationship between these variables is theoretically ambiguous: an adverse transitory terms of trade shock can either induce a deterioration or an improvement in the current account, depending on whether the resulting income effects are greater or less than the resulting substitution effects. The substitution effects involve both intertemporally substituting consumption and intratemporally substituting consumption between importables and nontradables. The relative strength of these substitution effects is estimated using data for five OECD countries during 1970/95; both are found to exert large and significant effects on the current account balance.
Download or read book The Response of the Current Account to Terms of Trade Shocks Persistence Matters written by Christopher Kent and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Transitory Terms of trade Shocks and the Current Account written by Maurice Obstfeld and published by . This book was released on 1982 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: The paper uses an intertemporal perfect-foresight optimizing model to analyze the effect of transitory terms-of-trade shocks on a small open . economy's current-account and utility time profiles. An adverse terms-of-trade shift known to be temporary induces the economy to run down its stock of external assets in the period before the terms of trade revert to their initial level. Subsequently, the assets consumed during this period are reaccumulated. The current-account response is due only in part to a desire to smooth out the future consumption stream. In addition, households know that the real value of any debt incurred while the terms of trade are unfavorable will be reduced sharply when the terms of trade improve. This opportunity for intertemporal price speculation causes the time path of instantaneous utility to be discontinuous,
Download or read book Dynamic Response to Foreign Transfers and Terms of trade Shocks in Open Economies written by Klaus Schmidt-Hebbel and published by World Bank Publications. This book was released on 1992 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Both permanent and transitory disturbances can change long- run capacity and output -- although they may have opposite effects on the current account. Liquidity constraints and wage rigidities tend to amplify the cyclical adjustment to external shocks.
Download or read book Terms of Trade Shocks and the Current Account written by Paul Anthony Cashin and published by . This book was released on 2006 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between terms of trade shocks, private saving, and the current account position. The relationship between these variables is theoretically ambiguous: an adverse transitory terms of trade shock can either induce a deterioration or an improvement in the current account, depending on whether the resulting income effects are greater or less than the resulting substitution effects. The substitution effects involve both intertemporally substituting consumption and intratemporally substituting consumption between importables and nontradables. The relative strength of these substitution effects is estimated using data for five OECD countries during 1970/95; both are found to exert large and significant effects on the current account balance.
Download or read book Four Decades of Terms of Trade Booms written by Gustavo Adler and published by International Monetary Fund. This book was released on 2013-05-09 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade shocks of the last decade have not differed much in magnitude from those observed during the 1970s, but that the associated windfall have been substantially larger. While aggregate saving increased more than in past episodes, the share of the windfall saved (the marginal saving rate) seems to be lower, suggesting that greater aggregate saving reflects mainly the sheer size of the windfall rather than a greater 'effort' to save it. Finally, we find evidence that, while savings during the boom help to increase post-boom income, the composition of such savings matters. Specifically, in past episodes, savings allocated to foreign asset accumulation appear to have contributed more to post-boom income than those devoted to domestic investment.
Download or read book Terms of trade Shocks and Optimal Investment written by Luis Serven and published by World Bank Publications. This book was released on 1999 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: February 1995 Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, because capital goods imports are excluded from the analytical framework -- an exclusion both arbitrary and unrealistic. Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, says Serven, because capital goods imports are excluded from the analytical framework. He argues that such an exclusion is both arbitrary and unrealistic. Serven reexamines the consequences of permanent and transitory changes in the terms of trade in a rational-expectations model of a small open economy with intertemporally optimizing agents, and with trade in both consumption and capital goods. In this framework, the response to a permanent terms of trade improvement is unambiguous: The long-run capital stock, and thus investment, must rise, and the current account must deteriorate -- exactly the opposite of the Laursen-Metzler effect. A transitory improvement in the terms of trade raises saving but has an uncertain effect on investment. So, the impact on the current account is generally ambiguous and is shown to depend on three factors: the import contents of consumption and investment, the duration of the windfall, and the degree of intertemporal substitutability in both consumption and investment. This paper -- a product of the Macroeconomics and Growth Division, Policy Research Department -- is part of a larger effort in the department to understand the macroeconomic impact of policy shifts and external shocks. The author may be contacted at [email protected].
Download or read book Macroeconomics for Professionals written by Leslie Lipschitz and published by Cambridge University Press. This book was released on 2019-01-23 with total page 312 pages. Available in PDF, EPUB and Kindle. Book excerpt: Understanding macroeconomic developments and policies in the twenty-first century is daunting: policy-makers face the combined challenges of supporting economic activity and employment, keeping inflation low and risks of financial crises at bay, and navigating the ever-tighter linkages of globalization. Many professionals face demands to evaluate the implications of developments and policies for their business, financial, or public policy decisions. Macroeconomics for Professionals provides a concise, rigorous, yet intuitive framework for assessing a country's macroeconomic outlook and policies. Drawing on years of experience at the International Monetary Fund, Leslie Lipschitz and Susan Schadler have created an operating manual for professional applied economists and all those required to evaluate economic analysis.
Download or read book Terms of Trade Shocks and Economic Recovery written by Norbert Funke and published by International Monetary Fund. This book was released on 2008 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper identifies factors that contribute to a fast recovery in growth after persistent negative terms of trade shocks, using a sample of 159 countries for 1970-2006. The results suggest that policies matter. Fast recoveries are fairly robustly related to real exchange rate depreciation and improvements in government stability and the institutional environment. A timely increase in aid may also support recovery.
Download or read book Terms of Trade Shocks and Optimal Investment written by Luis Servén and published by . This book was released on 2016 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, because capital goods imports are excluded from the analytical framework -- an exclusion both arbitrary and unrealistic. Conventional analyses of the effect of terms-of-trade shocks provide a misleading view of their impact on investment and the current account, says Serven, because capital goods imports are excluded from the analytical framework. He argues that such an exclusion is both arbitrary and unrealistic.Serven reexamines the consequences of permanent and transitory changes in the terms of trade in a rational-expectations model of a small open economy with intertemporally optimizing agents, and with trade in both consumption and capital goods.In this framework, the response to a permanent terms of trade improvement is unambiguous: The long-run capital stock, and thus investment, must rise, and the current account must deteriorate -- exactly the opposite of the Laursen-Metzler effect.A transitory improvement in the terms of trade raises saving but has an uncertain effect on investment. So, the impact on the current account is generally ambiguous and is shown to depend on three factors: the import contents of consumption and investment, the duration of the windfall, and the degree of intertemporal substitutability in both consumption and investment.This paper -- a product of the Macroeconomics and Growth Division, Policy Research Department -- is part of a larger effort in the department to understand the macroeconomic impact of policy shifts and external shocks. The author may be contacted at [email protected].
Download or read book Macroeconomic and Sectoral Effects of Terms of Trade Shocks written by International Monetary Fund and published by International Monetary Fund. This book was released on 1999-10-01 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates the impact of long-run terms-of-trade shocks. Analytically, we show that, if capital goods are largely importable or the labor supply is sufficiently elastic, then natural-resource booms increase aggregate investment and worsen the current account, but Dutch ‘Disease’ effects are weak. We then examine 18 oil-exporting developing countries during 1965-89. Favorable terms-of-trade shocks increase investment and (especially government) consumption, but reduce medium-term savings; hence, the current account deteriorates. Nontradable output increases, in response to real appreciations, but Dutch Disease effects are strikingly absent. Investment, consumption, and nontradable output respond more to a terms-of-trade decline than to an increase.
Download or read book Terms of Trade Shocks and the Current Account written by Paul Cashin and published by . This book was released on 1999 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book The Effects of Currency Substitutionon the Response of the Current Account to Supply Shocks written by International Monetary Fund and published by International Monetary Fund. This book was released on 1988-01-01 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Standard real models predict that a permanent increase in oil prices would result in a current account surplus. This is due to the fact that investment falls while saving remains unchanged. This paper shows that if currency substitution is introduced into the analysis, the same shock could cause a current account deficit. Furthermore, the higher the dependence of the economy on oil, the larger would be the deficit. The presence of foreign money makes it optimal for the public to decrease saving following the terms of trade deterioration. The fall in saving could be larger than the decline in investment.
Download or read book Four Decades of Terms of Trade Booms written by Gustavo Adler and published by International Monetary Fund. This book was released on 2013-05-09 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the history of terms-of-trade booms (during 1970–2012), with a focus on Latin America, through the prisms of a simple metric that quantifies the associated income windfall. We also document saving patterns during these episodes and propose a measure of how much of the income windfall was saved. We find that Latin America‘s terms-of-trade shocks of the last decade have not differed much in magnitude from those observed during the 1970s, but that the associated windfall have been substantially larger. While aggregate saving increased more than in past episodes, the share of the windfall saved (the marginal saving rate) seems to be lower, suggesting that greater aggregate saving reflects mainly the sheer size of the windfall rather than a greater 'effort' to save it. Finally, we find evidence that, while savings during the boom help to increase post-boom income, the composition of such savings matters. Specifically, in past episodes, savings allocated to foreign asset accumulation appear to have contributed more to post-boom income than those devoted to domestic investment.
Download or read book Economic Shocks and the Global Environment written by F. Desmond McCarthy and published by World Bank Publications. This book was released on with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt:
