According to the Harberger-Laursen-Metzler (HLM) effect an exogenous increase in the terms of trade faced by a small open economy leads to an improvement in that country’s trade balance. In this paper structural vector autoregression techniques are used to investigate whether there is any systematic pattern in the responses of the trade balance to terms of trade shocks for a large number of sma...

Since Friedman (1953) and Poole (1970), an advantage often attributed to ßexible exchange rate regimes relative to Þxed regimes is their ability to better insulate the economy against real shocks. I use a post-Bretton Woods sample (1973-1996) of 74 developing countries to assess whether the business cycle response of real GDP, real exchange rates and inßation to terms of trade shocks differ sys...

In this paper, I revisit the problem of the anomaly of terms of trade dynamics. First, I empirically analyze the effect of a US aggregate labor productivity shock on the US terms of trade using a VAR and Maximum Forecast Error Variance identification. I find that the shock appreciates the terms of trade of the US. Next, using a non-homothetic preference a lá Melitz and Ottaviano (2008), I expla...

This paper presents estimates of the effects that terms of trade volatility has on real GDP per capita growth. Based on 5-year non-overlapping panel data comprising 175 countries during 1980-2010, the paper finds that terms of trade volatility has significant adverse effects on economic growth in countries with procyclical government spending; in countries where government spending is countercy...