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Impact of Terms-of-Trade on Business Cycles of Slovakia, Czech Republic and Croatia

Karol Szomolányi orcid.org/0000-0003-3749-7148 ; University of Economics Bratislava, Slovakia
Martin Lukáčik orcid.org/0000-0002-1699-6450 ; University of Economics Bratislava, Slovakia
Adriana Lukáčiková orcid.org/0000-0003-1569-6242 ; University of Economics Bratislava, Slovakia

Abstract

Different theoretical and empirical studies lead to the different results. Different theories suggest a positive as well as a negative relation between the terms-of-trade and trade balance. The traditional Keynesian Harberger-Laursen-Metzler effect of the terms-of-trade on the trade balance is positive. According to the Obsfeld-Svensson-Razin effect the positive relation between the terms-of-trade and trade balance is the smaller, the higher a persistence of the terms-of-trade shocks is. The empirical studies do not support statistically significant impact of the terms-of-trade on the output in the developing countries. The goal of the paper is to verify an impact of the terms-of-trade on the Slovak Czech and Croatian business cycles and trade balances. Using the structural vector auto-regression analysis of the terms-of-trade, trade balance, output, consumption and investment cyclical components, we show that the relationship between the terms-of-trade and trade-balance is negative in the Slovak and Czech economy. The relationship between the terms-of-trade and trade-balance is statistically insignificant in the Croatian economy. Terms-of-trade shocks explain only small fraction of business cycles in the Slovak, Czech and Croatian economies. Data exhibit Obstfeld-Svensson-Razin effect of the terms-of-trade on the trade balance.

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Keywords

Hrčak ID:

251163

URI

https://hrcak.srce.hr/251163

Publication date:

31.10.2016.

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