The Response of the Current Account to Terms of Trade Shocks: A Panel-data Study

Christopher Kent
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Christopher Kent: Reserve Bank of Australia

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: This paper demonstrates that the response of the current account to shocks depends on the degree of persistence of these shocks. This result is in accordance with standard intertemporal models that incorporate both consumption smoothing and an investment response to shocks. The estimation procedure used to test this result takes advantage of the fact that the persistence of the terms of trade varies greatly across countries. Countries with the least persistent terms of trade shocks are shown to exhibit a positive relationship between these shocks and the current account; countries with the most persistent terms of trade shocks are shown to exhibit a negative relationship.

JEL-codes: C23 F32 F41 (search for similar items in EconPapers)
Date: 1997-10
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Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp9705

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