Journal article
Anticipated versus unanticipated terms of trade shocks and the J-curve phenomenon
Journal of International Money and Finance, Vol.81, pp.1-19
2018
Abstract
Using a dynamic stochastic general equilibrium (DSGE) model, we examine the impact of anticipated and unanticipated terms of trade (ToT) shocks on aggregate output, inflation and the trade balance (TB). This allows us to offer an alternative explanation of the J-curve phenomenon. We find that an unanticipated ToT shock increases real output as well as inflation but the J-curve phenomenon may not exist under a certain condition. However, under the same condition, an anticipated ToT shock leads to the J-curve effect. We find that our main result, concerning the J-curve phenomenon, continues to hold even if the assumption of rational expectations about the ToT is relaxed. Further analysis reveals that the presence of a cost channel of monetary policy increases the intensity of the J-curve effect. Assuming plausible parameter values, while using a more general model, calibration results support our theoretical predictions.
Details
- Title
- Anticipated versus unanticipated terms of trade shocks and the J-curve phenomenon
- Authors
- Syed Zahid Ali (Author) - Lahore University of Management Sciences, PakistanSajid Anwar (Author) - University of the Sunshine Coast - Faculty of Arts, Business and Law
- Publication details
- Journal of International Money and Finance, Vol.81, pp.1-19
- Publisher
- Pergamon
- Date published
- 2018
- DOI
- 10.1016/j.jimonfin.2017.10.003
- ISSN
- 0261-5606
- Copyright note
- Copyright © 2018. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
- Organisation Unit
- School of Business and Creative Industries; Indigenous and Transcultural Research Centre; University of the Sunshine Coast, Queensland; USC Business School - Legacy
- Language
- English
- Record Identifier
- 99451055002621
- Output Type
- Journal article
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