Oil Prices and the Terms of Trade

44 Pages Posted: 27 Apr 2000 Last revised: 15 May 2000

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Mario J. Crucini

Vanderbilt University - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 1998

Abstract

The combination of substantial terms of trade variability and unstable correlation patterns of trade prices with output and trade volumes has led some to suggest a break in the link between trade volumes and prices. We find that oil accounts for much of the variation in the terms of trade over the last twenty five years and its quantitative role varies significantly over time. And since our dynamic general equilibrium model predicts that the economy responds differently to oil supply shocks than to other shocks, changes in their relative importance help to account for the unstable correlations in the data.

Suggested Citation

Backus, David K. and Crucini, Mario J., Oil Prices and the Terms of Trade (August 1998). NBER Working Paper No. w6697. Available at SSRN: https://ssrn.com/abstract=121869

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Mario J. Crucini

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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