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 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 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 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 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 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 Transitory Terms of trade Shocks and the Current Account written by Maurice Obstfeld and published by . This book was released on 1981 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Terms of Trade and the Current Account Under Uncertainty written by Klaus Schmidt-Hebbel and published by . This book was released on 2017 with total page 12 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyses the effect of stochastic terms of trade shocks on the current account of a small and open economy. Under uncertainty the distinctions between expected and unexpected, transitory and permanent shocks of the previous perfect foresight literature break down. It is shown that under terms of trade presenting stochastic structural changes, the rational consumer maker use of an error learning model to form his expectations on future relative prices.In this framework the consumer ́s optimal plan is derived for a two-good certainty equivalence utility function. Finally a simulation for the foreign debt profile in the aftermath of a terms of trade deterioration is performed.
Download or read book Terms of Trade Shocks and Incomplete Information written by Daniel Rees and published by . This book was released on 2013 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: "The terms of trade are subject to both permanent and transitory shocks. Particularly for commodity-producing small open economies, it is sometimes argued that the inability of agents to determine which of these shocks are permanent and which are transitory leads to more macroeconomic volatility than would be the case if agents had perfect information about the persistence of these shocks. I set up a small open economy model in which agents have imperfect information about the persistence of terms of trade shocks and estimate the parameters of the model using Australian data. The results point to the existence of large informational frictions. In fact, agents' beliefs about the future path of the terms of trade following transitory and permanent shocks are almost identical. However, the results also suggest that incomplete information causes agents to respond more cautiously to terms of trade shocks. Consequently, consumption, output and the trade balance are less volatile under incomplete information than they are under full information."--Abstract.
Download or read book Temporary Terms of Trade Disturbances The Real Exchange Rate and the Current Account written by Sebastian Edwards and published by . This book was released on 1990 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper a general equilibrium intertemporal model with optimizing consumers and producers is developed to analyze how the temporary term's of trade disturbances affect the path of real exchange rates and the current account. Changes in the internal terms of trade (due to tariff changes) and to the external terms of trade are considered. The model is completely real, and considers a small open economy that produces and consumes three goods each period. It is shown that, without imposing rigidities or adjustment costs, interesting paths for the equilibrium real exchange rate can be generated. In particular "equilibrium overshooting" can be observed. Precise conditions under which a temporary import tariff will worsen the current account in period 1 are derived. The way in which temporary and permanent external terms of trade shocks will affect the current account are analyzed. Several ways in which the model can be extended are discussed The results obtained from this model have important implications for the design of balance of payments policy and for the analysis of real exchange rate misalignment and overvaluation
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 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 Private Saving and Terms of Trade Shocks written by Jonathan D. Ostry and published by . This book was released on 2006 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the relationship between temporary terms of trade shocks and household saving in developing countries. It is first shown that, from a theoretical standpoint, this relationship is ambiguous: private saving may rise or fall in response to a transitory terms of trade shock, depending on the values of the intertemporal elasticity of substitution and the intratemporal elasticity of substitution between traded and nontraded goods. Empirical estimates of these two parameters are obtained using data from a sample of 13 developing countries, and then used to draw implications for the response of private saving to transitory terms of trade shocks.
Download or read book The Zero Root Property written by Olivier Cardi and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this contribution, we show that the persistence and the time of occurrence of a terms-of-trade shock matter in determining steady-state changes: (i) a strong persistent (temporary) terms-of-trade worsening induces a long-run decline in the real expenditure greater than after a permanent disturbance; (ii) an adverse permanent shift in the terms of trade raises the real expenditure in the long run if the shock is expected to occur in the distant future. Finally, according to whether a temporary terms-of-trade worsening is anticipated or not, the current account displays a monotonic or a nonmonotonic adjustment.
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 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 Tariffs Terms of Trade and the Real Exchange Rate in an Intertemporal Optimizing Model of the Current Account written by Sebastian Edwards and published by . This book was released on 1987 with total page 60 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper a minimal general equilibrium intertemporal model, with optimizing consumers and producers, is developed to analyze the process of real exchange rate determination. The model is completely real, and considers a small open economy that produces and consumes three goods each period. The model is also used to analyze the way in which the current account responds to several shocks. The working of the model is illustrated for the case of two disturbances: the imposition of import tariffs, and external terms of trade shocks. In the case of import tariffs, a distinction is made between temporary, anticipated, and permanent changes. It is shown that, without imposing rigidities or adjustment costs, interesting paths for the equilibrium real exchange rate can be generated. In particular "overshooting" and movements in opposite directions in periods one and two can be observed. Precise conditions under which temporary import tariffs will improve the current account are derived. Finally, several ways in which the model can be extended to take into account other issues such as changes in the fiscal deficit, and financial deregulation are discussed in detail.
