Discussion of Terms of Trade Shocks and Fiscal Cycles

This paper investigates the impact of terms of trade movements on the stance of fiscal policy. This analysis is timely and important because the volatility of the terms of trade has increased in recent years, largely due to significant fluctuations in commodity prices. Moreover, the prominence of fiscal policy has increased as countries have adopted aggressive discretionary actions to combat the global recession. Although the paper includes a selected review of the related theoretical literature, its primary purpose is empirical: that is, to determine what can be learned about this relationship from the data.