The role of monetary policy in mitigating terms of trade instability
The authors observe that volatility in the terms of trade has a statistically significant and positive impact on the volatility of output growth, with the biggest effects coming on consumption, imports and exports, using evidence from a panel of 71 countries between 1971 and 2005.
The authors posit that terms of trade volatility mainly cause instability in household consumption, imports and exports, rather than in investment as would be expected. They find that while a monetary policy regime
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