Impact of Terms-of-Trade on Business Cycles of Slovakia, Czech Republic and Croatia

8 Pages Posted: 20 Nov 2018

See all articles by Karol Szomolányi

Karol Szomolányi

University of Economics in Bratislava - Department of Operations Research and Econometrics

Martin Lukacik

University of Economics in Bratislava - Department of Operations Research and Econometrics

Adriana Lukacikova

University of Economics in Bratislava - Department of Operations Research and Econometrics

Date Written: September 8, 2016

Abstract

Different theoretical and empirical studies lead to the different results. Different theories suggest a positive as well as a negative relation between the terms-of-trade and trade balance. The traditional Keynesian Harberger-Laursen-Metzler effect of the terms-of-trade on the trade balance is positive. According to the Obsfeld-Svensson-Razin effect the positive relation between the terms-of-trade and trade balance is the smaller, the higher a persistence of the terms-of-trade shocks is. The empirical studies do not support statistically significant impact of the terms-of-trade on the output in the developing countries. The goal of the paper is to verify an impact of the terms-of-trade on the Slovak Czech and Croatian business cycles and trade balances. Using the structural vector auto-regression analysis of the terms-of-trade, trade balance, output, consumption and investment cyclical components, we show that the relationship between the terms-of-trade and trade-balance is negative in the Slovak and Czech economy. The relationship between the terms-of-trade and trade-balance is statistically insignificant in the Croatian economy. Terms-of-trade shocks explain only small fraction of business cycles in the Slovak, Czech and Croatian economies. Data exhibit Obstfeld-Svensson-Razin effect of the terms-of-trade on the trade balance.

Keywords: innovation, terms-of-trade, business cycle, Slovak economy, Czech economy, Croatian economy, trade balance, market

JEL Classification: C32, E32, F14

Suggested Citation

Szomolányi, Karol and Lukacik, Martin and Lukacikova, Adriana, Impact of Terms-of-Trade on Business Cycles of Slovakia, Czech Republic and Croatia (September 8, 2016). 2016 ENTRENOVA Conference Proceedings. Available at SSRN: https://ssrn.com/abstract=3282311 or http://dx.doi.org/10.2139/ssrn.3282311

Karol Szomolányi (Contact Author)

University of Economics in Bratislava - Department of Operations Research and Econometrics ( email )

Dolnozemská cesta 1
Bratislava, 852 35
Slovakia

Martin Lukacik

University of Economics in Bratislava - Department of Operations Research and Econometrics ( email )

Dolnozemská cesta 1
Bratislava, 852 35
Slovakia

Adriana Lukacikova

University of Economics in Bratislava - Department of Operations Research and Econometrics

Dolnozemská cesta 1
Bratislava, 852 35
Slovakia

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