Terms of Trade Shocks and Fiscal Cycles

26 Pages Posted: 1 Mar 2010 Last revised: 15 Aug 2010

See all articles by Graciela Kaminsky

Graciela Kaminsky

National Bureau of Economic Research (NBER); George Washington University - Department of Economics

Date Written: February 2010

Abstract

The latest boom in commodity prices fueled concerns about fiscal policies in commodity-exporting countries, with many claiming that it triggered loose fiscal policy and left no funds for a rainy day. This paper examines the links between fiscal policy and terms-of-trade fluctuations using a sample of 74 countries, both developed and developing. It finds evidence that booms in the terms of trade do not necessarily lead to larger government surpluses in developing countries, particularly in emerging markets and especially during capital flow bonanzas. This is not the case in OECD countries, where fiscal policy is of an acyclical nature.

Suggested Citation

Kaminsky, Graciela, Terms of Trade Shocks and Fiscal Cycles (February 2010). NBER Working Paper No. w15780. Available at SSRN: https://ssrn.com/abstract=1560915

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