Terms of trade shocks not symmetric – BoE paper

Container ship at sea

Developing countries are affected by export shocks around twice as much as import shocks, a result which helps solve the “terms of trade disconnect puzzle”, research published by the Bank of England finds.

In the working paper, Federico Di Pace, Luciana Juvenal and Ivan Petrella study terms-of-trade shocks in a group of 38 “emerging and low-income” countries. The puzzle is that terms of trade shocks appear relatively unimportant in the data, but are important in the theory.

The authors solve

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