Terms-of-Trade Shocks are Not All Alike

62 Pages Posted: 26 Jan 2021

See all articles by Federico Di Pace

Federico Di Pace

Bank of England

Luciana Juvenal

International Monetary Fund (IMF)

Ivan Petrella

University of Warwick - Finance Group; University of Warwick - Warwick Business School; University of Warwick; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2020

Abstract

When analyzing terms-of-trade shocks, it is implicitly assumed that the economy responds symmetrically to changes in export and import prices. Using a sample of developing countries our paper shows that this is not the case. We construct export and import price indices using commodity and manufacturing price data matched with trade shares and separately identify export price, import price, and global economic activity shocks using sign and narrative restrictions. Taken together, export and import price shocks account for around 40 percent of output fluctuations but export price shocks are, on average, twice as important as import price shocks for domestic business cycles.

JEL Classification: F41, F44, E31, F14, F10, Q02

Suggested Citation

Di Pace, Federico and Juvenal, Luciana and Petrella, Ivan and Petrella, Ivan and Petrella, Ivan, Terms-of-Trade Shocks are Not All Alike (December 1, 2020). IMF Working Paper No. 2020/280, Available at SSRN: https://ssrn.com/abstract=3772485

Federico Di Pace

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Luciana Juvenal (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Ivan Petrella

University of Warwick - Finance Group ( email )

Gibbet Hill Rd
Coventry, CV4 7AL
Great Britain

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

University of Warwick ( email )

Gibbet Hill Rd.
Coventry, West Midlands CV4 8UW
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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