Transitory and Permanent Terms of Trade Shocks and the Current Account in Latin American Countries

Alicante Espña

Congreso; XXIV CONGRESO INTERNACIONAL DE ECONOMÍA APLICADA; 2010

ASELPET Universidad de Alicante, España

We investigate the influence of terms of trade on the current account in Latin American countries, and if the duration of the shocks matter. Since terms of trade volatility is a major source of instability in these economies, identification of the presence and magnitude of such link is of policy relevance. Using panel regression the duration of terms of trade shocks, and the influence of the degree of persistence, for 18 Latin American countries during 1976-2007 is assessed. An association of both transitory and permanent shocks with the current account is found, with a positive sign and statistically significant