Commodity terms of trade news and country spreads in emerging economies

Jia Liu, Ingul Baek and Sanha Noh

Economics Letters, 2025, vol. 256, issue C

Abstract: This paper examines the dynamic relationship between commodity terms of trade (CTOT) news shocks and country spreads in commodity-exporting emerging economies. Using a VAR model and shock identification approach based on Uhlig (2003), we show that positive CTOT news shocks lead to significant and persistent increases in output, consumption, and investment, accompanied by reductions in country spreads. Our analysis reveals that country spread shocks largely reflect information about future movements in CTOT. Country-specific results highlight heterogeneity, with stronger correlations between these shocks observed in Argentina, Peru, and Colombia compared to Brazil and Chile. Our findings emphasize that financial frictions potentially play a role in propagating CTOT news shocks in commodity-exporting emerging economies.

Keywords: Commodity terms of trade; News shocks; Country spreads; Emerging economies; VAR model (search for similar items in EconPapers)
JEL-codes: E32 F41 G15 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:256:y:2025:i:c:s0165176525004410

DOI: 10.1016/j.econlet.2025.112604

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