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The Zero-Root Property: Permanent vs. Transitory Terms of Trade Shocks

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>09/2007
<mark>Journal</mark>Review of International Economics
Issue number4
Number of pages21
Pages (from-to)782-802
Publication StatusPublished
Early online date24/08/07
<mark>Original language</mark>English


In this contribution, we show that the persistence and the time of occurrence of a terms‐of‐trade shock matter in determining steady‐state changes: (i) a strong persistent (temporary) terms‐of‐trade worsening induces a long‐run decline in the real expenditure greater than after a permanent disturbance; (ii) an adverse permanent shift in the terms of trade raises the real expenditure in the long run if the shock is expected to occur in the distant future. Finally, according to whether a temporary terms‐of‐trade worsening is anticipated or not, the current account displays a monotonic or a nonmonotonic adjustment.