Terms of trade volatility exacerbates shock effects for small open economies
A high level of volatility in a country's terms of trade can exacerbate the negative effect of a terms of trade level shock for small, open economies, as well as bringing about a shift in the composition of output from non-tradables to tradables, and a substitution in factor inputs from capital to labour.
A discussion paper published by the Reserve Bank of Australia (RBA), written by RBA economist Daniel Rees and Patricia Gómez-González of Massachusetts Institute of Technology, finds the direct
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