The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations

Mendoza, Enrique G.

doi:10.2307/2527429

Cited by 756 publications

(611 citation statements)

References 22 publications

Supporting

Mentioning

510

Contrasting

Unclassified

Order By: Relevance

“…In this regard, Broda (2004) has found that terms-of-trade changes are larger in flexible regimes (floats) than in fixed regimes (pegs). In addition, Dungey (2004) suggests that terms-of-trade effects are larger in developed countries than in developing ones, although Mendoza (1995) claims the opposite. Moreover, Odedokun's (1997) study on African countries shows that improvements in the term of trade derived from falling imports prices appreciate the REER, but this does not occur when such improvements come from rising exports prices.…”

Section: Terms Of Tradementioning

confidence: 99%

Does trade openness influence the real effective exchange rate? New evidence from panel time-series

Gantman

Dabós

2017

SERIEs

View full text Add to dashboard Cite

Using a dataset of 101 countries over the 1960-2011 period, we examine the relationship between the real effective exchange rate (REER), on the one hand, and trade openness, trade balance, the terms of trade, factor productivity, and exchange rate regime, on the other one. We use new econometric estimators that deal with the problems of potential endogeneity and cross-sectional dependence that are present in the data, while also allowing for cross-country heterogeneity in the parameters of interest. The findings of the study strongly support the hypothesis that an increase in trade openness produces a depreciation of the REER. The other variables considered in the analysis-factor productivity, trade balance, terms of trade, and exchange rate regime-do not have a statistically significant effect that is robust to different sample compositions and alternative statistical estimators.

show abstract

Section: Terms Of Tradementioning

confidence: 99%

Does trade openness influence the real effective exchange rate? New evidence from panel time-series

Gantman

Dabós

2017

SERIEs

View full text Add to dashboard Cite

show abstract

“…The literature also identified the terms-of-trade, defined as the ratio of the prices of a country's exports to the prices of its imports, as being a major determinant of real exchange rate movements (Dornbush, 1980;De Gregorio and Wolf, 1994;Edwards, 1994). Terms-of-trade fluctuations are usually twice as large in developing countries as in developed countries (Baxter and Kouparitsas, 2000), accounting for roughly onethird to half of the output volatility of these economies (Mendoza, 1995;Broda and Tille, 2003). Analyzing terms-of-trade's impact on the real exchange rate is highly relevant for developing countries since their wealth largely depends on commodity exports.…”

Section: Introductionmentioning

confidence: 99%

Energy prices and the real exchange rate of commodity-exporting countries

Dauvin

2014

International Economics

View full text Add to dashboard Cite

This paper investigates the relationship between energy prices and the real effective exchange rate of commodity-exporting countries. We consider two sets of countries: 10 energy-exporting and 23 non-fuel commodity-exporting countries over the period 1980-2011. Estimating a panel cointegrating relationship between the real exchange rate and its fundamentals, we provide evidence for the existence of "energy currencies". Relying on the estimation of panel smooth transition regression (PSTR) models, we show that there exists a certain threshold beyond which the real effective exchange rate of both energy and commodity exporters reacts to oil prices, through the terms-of-trade. More specifically, when oil price variations are low, the real effective exchange rates are not determined by terms-of-trade but by other usual fundamentals. Nevertheless, when the oil market is highly volatile, currencies follow an "oil currency" regime, terms-of-trade becoming an important driver of the real exchange rate.JEL Classification: C33, F31, 013, Q43

show abstract

“…These issues have also been studied extensively in a partial-equilibrium context, e.g., the large literature on the permanent-income hypothesis, starting with Friedman (1957). 3 Numerical results on welfare gains of incomplete markets have been obtained by Mendoza (1995), Tesar (1995), Kim (1997), and Kubler and Schmedders (2000). A relatively large literature has considered the welfare gains of complete asset markets over autarky using both analytical and numerical methods; cf.…”

Section: Introductionmentioning

confidence: 99%

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

Kim¹,

Kim

2001

SSRN Journal

View full text Add to dashboard Cite

In this paper, we investigate the welfare implications of alternative financial market structures in a two-country endowment economy model. In particular, we obtain an analytic expression for the expected lifetime utility of the representative household when sovereign bonds are the only internationally traded asset, and we compare this welfare level with that obtained under complete asset markets. The welfare cost of incomplete markets is negligible if agents are very patient and shocks are not very persistent, but this cost is dramatically larger if agents are relatively impatient and shocks are highly persistent. For realistic cases in which agents are very patient and shocks are highly persistent (that is, the discount factor and the first-order autocorrelation are both near unity), the welfare cost of incomplete markets is highly sensitive to the specific values of these parameters. Finally, using a non-linear solution algorithm, we confirm that a two-country production economy with endogenous labor supply has qualitatively similar welfare properties.

show abstract

The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations

Cited by 756 publications

References 22 publications

Does trade openness influence the real effective exchange rate? New evidence from panel time-series

Does trade openness influence the real effective exchange rate? New evidence from panel time-series

Energy prices and the real exchange rate of commodity-exporting countries

Patience, Persistence, and Welfare Costs of Incomplete Markets in Open Economies

Contact Info

Product

Resources

About