Terms of Trade Shocks and Fiscal Cycles

Graciela L. Kaminsky

NBER Working Paper No. 15780
Issued in February 2010
NBER Program(s):International Finance and Macroeconomics Program

The latest boom in commodity prices fueled concerns about fiscal policies in commodity-exporting countries, with many claiming that it triggered loose fiscal policy and left no funds for a rainy day. This paper examines the links between fiscal policy and terms-of-trade fluctuations using a sample of 74 countries, both developed and developing. It finds evidence that booms in the terms of trade do not necessarily lead to larger government surpluses in developing countries, particularly in emerging markets and especially during capital flow bonanzas. This is not the case in OECD countries, where fiscal policy is of an acyclical nature.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w15780

Published: Graciela L Kaminsky, 2010. "Terms of Trade Shocks and Fiscal Cycles," RBA Annual Conference Volume, in: Renée Fry & Callum Jones & Christopher Kent (ed.), Inflation in an Era of Relative Price Shocks Reserve Bank of Australia.

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