M. Ayhan Kose, Franziska Ohnsorge, Lei (Sandy) Ye, 24 April 2017

Investment growth in emerging market and developing economies has slowed sharply since 2010. This column argues that this slowdown reflects a range of factors, including negative terms-of-trade shocks, slowing FDI inflows, weak activity, and rising private debt burdens and political risk. Policymakers can boost investment directly through public investment, and indirectly by taking measures to improve overall growth prospects and the business climate.

Stephanie Schmitt-Grohe, Martín Uribe, 20 July 2015

In the past few years, the world has witnessed large swings in world relative prices, from oil, to metals, to food prices. This column examines how important these terms-of-trade shocks are in explaining GDP fluctuations. Using structural vector autoregression analysis, it shows that terms-of-trade shocks account for no more than 10% of business-cycle fluctuations in the majority of poor and emerging countries.

Joshua Aizenman, Daniel Riera-Crichton, Sebastian Edwards, 14 January 2012

Last year’s surge in commodity prices was a reminder, if we needed one, of the problems caused by terms-of-trade volatility in emerging economies. This column looks at the real exchange rate adjustments to commodity terms-of-trade shocks in the region exposed to the highest volatility – Latin America. It finds that active reserve management not only lowers the short-run impact of shocks, but also substantially reduces real exchange rate volatility.

Giancarlo Corsetti, 06 November 2007

Classic analysis by Obstfeld and Rogoff says that the dollar still has a long way to fall. Some new theory and recent simulations suggests that US trade response may be bigger than expected and so the dollar may have fallen enough.

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