Terms of Trade, the Current Account and Imports of Intermediates and Investment Goods

Søren Nielsen

No 89-21, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: This article considers the consequences of a terms of trade deterioration in a small, open economy that imports intermediates and investment goods from abroad. We find that a positive current account effect of a permanent terms of trade deterioration is very likely. As to the effects of a (short-lived) temporary worsening of the trade, the current account effect depends crucially on what is implied by the worsening; specifically: does it involve a change in the price of foreign assets relative to the price of domestic goods?

Pages: 23 pages
Date: 1989-10
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Persistent link: https://EconPapers.repec.org/RePEc:kud:kuiedp:8921

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