Terms-of-Trade Shocks and Slovak Economy

Martin Lukáčik (), Karol Szomolányi () and Adriana Lukáčiková ()
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Martin Lukáčik: University of Economics in Bratislava
Adriana Lukáčiková: University of Economics in Bratislava

Acta Universitatis Bohemiae Meridionales, 2016, vol. 19, issue 1, 10-19

Abstract: 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 and that the terms-of-trade shocks explain only a small fraction of business cycles in the Slovak economy. We use quarterly data in constant prices in the period 1997-2014. The results are in line with the theoretical and empirical studies in the contemporary world economic literature. The negative relationship between the terms-of-trade and the trade balance confirms a theoretical Obstfeld-Svensson-Razin effect. The positive effect of a change in the terms-of-trade on the trade balance - so called Harberger-Laursen-Metzler effect - is the smaller, the more persistent terms-of-trade shocks are. By capital adjustment costs, the theoretical effect may be even negative. A modest contribution of the terms-of-trade shocks to the business-cycle fluctuations in Slovakia is in line with other empirical papers around the world.

Keywords: Terms of Trade; Business Cycle; Slovak Economy; Trade Balance (search for similar items in EconPapers)
JEL-codes: C32 E32 F14 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:boh:actaub:v:19:y:2016:i:1:p:10-19

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