Premio Anual de Investigación Económica “Dr. Raúl Prebisch”

Unprecedented Changes in the Terms of Trade

Mariano Kulish

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2016-05-11 - The ongoing development of Asia has led to unprecedented changes in the terms of trade of commodity-exporting economies. Using a small open economy model, we estimate changes in the long-run level and variance of Australia’s terms of trade and study the quantitative implications of these changes. We find that the long-run prices of commodities that Australia exports started to increase significantly in mid 2003 and that the volatility of shocks to commodity prices doubled soon after. The persistent increase in the level of commodity prices is smaller than single equation estimates suggest, but our inferences rely on many observables that in general equilibrium also respond to shifts in the long-run level of the terms of trade.