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A three-good, stochastic intertemporal equilibrium model of a small open economy is used to examine the link between terms of trade and business cycles. Equilibrium co-movements of model economies representing industrial and developing countries are computed and compared with the stylized facts of 30 countries. The results show that terms-of-trade shocks account for half of observed output variability and that the model mimics the Harberger-Laursen-Metzler effect and produces large deviations from purchasing power parity. The elasticity of substitution between tradable and nontradable goods and the persistence of the shocks play a key role in producing these results.

Exports and Imports --- Macroeconomics --- Empirical Studies of Trade --- Macroeconomics: Consumption --- Saving --- Wealth --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- Price Level --- Inflation --- Deflation --- International economics --- Economic growth --- Terms of trade --- Consumption --- Trade balance --- Business cycles --- Import prices --- International trade --- National accounts --- Prices --- Economic policy --- nternational cooperation --- Economics --- Balance of trade --- Imports --- United States --- Nternational cooperation

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This paper provides a numerical analysis of an intertemporal equilibrium model of a small open, barter economy that is subject to random shocks affecting endowments, the terms of trade, and the real interest rate. Equilibrium stochastic processes for macroeconomic aggregates are computed and their properties are compared with observed stylized facts. The model mimics the Harberger-Laursen-Metzler effect, but cannot account for a countercyclical trade balance, the variability of the real exchange rate, and the income elasticity of imports. The results also show that the correlation between the trade balance and the terms of trade, given incomplete insurance markets, is sensitive to changes in preference parameters and in the persistence of exogenous shocks.

Balance of trade --- Business Fluctuations --- Canada: 1913 --- -Capital market --- Consumption --- Cycles --- Economic History: Macroeconomics --- Economic policy --- Economics --- Empirical Studies of Trade --- Exports and Imports --- Finance --- Finance: General --- Financial markets --- General Financial Markets: General (includes Measurement and Data) --- Growth and Fluctuations: U.S. --- Imports --- International economics --- International trade --- Macroeconomics --- Macroeconomics: Consumption --- National accounts --- Nternational cooperation --- Saving --- Securities markets --- Terms of trade --- Trade balance --- Trade: General --- Wealth --- United States

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Common issues emerging from the recent experience with IMF-supported programs in Hungary, Poland, Czechoslovakia, Bulgaria, and Romania are analyzed. These comprise the initial price overshooting and output collapse and the financial and structural problems associated with bad loan portfolios and sluggish implementation of privatization programs. Substantial success has been achieved in the initial microstabilization and opening-up effort. But difficulties with fiscal and monetary control may be emerging as a result of social and political pressures and unclear policy signals on the micro issues involving the structural transformation of the productive and financial systems.

Balance of trade --- Comparison of Public and Private Enterprises and Nonprofit Institutions --- Consumption --- Contracting Out --- Conventional peg --- Currency --- Deflation --- Economic policy --- Economics --- Empirical Studies of Trade --- Exchange rate arrangements --- Exports and Imports --- Finance --- Foreign Exchange --- Foreign exchange --- Inflation --- International economics --- International trade --- Macroeconomics --- Macroeconomics: Consumption --- Monetary economics --- Money and Monetary Policy --- National accounts --- Nternational cooperation --- Price Level --- Prices --- Privatization --- Saving --- Terms of trade --- Trade balance --- Wealth --- Poland, Republic of