Credit constraints and the asymmetric current account response to terms-of-trade shocks: an empirical application to Latin American countries

Buenos Aires

Congreso; XLV Reunión Anual Asociación Argentina de Economía Política; 2010

Asociación Argentina de Economía Política

This paper assesses whether the current account has an asymmetric response to permanent terms-of-trade shocks in countries with borrowing constraints. The Baxter-King filter is used to decompose the terms-of-trade series into its permanent and transitory components; we further divide permanent shocks into their positive and negative components. We focus on eighteen Latin American countries (1973-2008) and run a Feasible Generalized Least Squares panel data regression to test if the current account response to positive shocks is greater than zero and if the response to negative shocks is null. Results are fairly similar to those reported by Agénor and Aizenman (2004).