The Zero-Root Property:Permanent vs. Transitory Terms of Trade Shocks

Cardi, Olivier (2007) The Zero-Root Property:Permanent vs. Transitory Terms of Trade Shocks. Review of International Economics, 15 (4). pp. 782-802. ISSN 0965-7576

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In this contribution, we show that the persistence and the time of occurrence of a terms‐of‐trade shock matter in determining steady‐state changes: (i) a strong persistent (temporary) terms‐of‐trade worsening induces a long‐run decline in the real expenditure greater than after a permanent disturbance; (ii) an adverse permanent shift in the terms of trade raises the real expenditure in the long run if the shock is expected to occur in the distant future. Finally, according to whether a temporary terms‐of‐trade worsening is anticipated or not, the current account displays a monotonic or a nonmonotonic adjustment.

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Journal Article
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Review of International Economics
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10 Sep 2018 08:44
Last Modified:
22 Nov 2022 06:17