TY - BOOK ID - 78437694 TI - Terms-of-Trade Cycles and External Adjustment AU - Adler, Gustavo AU - Magud, Nicolas E AU - Werner, Alejandro M PY - 2017 SN - 1475584083 9781475584080 PB - Washington, D.C. International Monetary Fund DB - UniCat KW - Business cycles KW - Business cycles. KW - Economic cycles KW - Economic fluctuations KW - Cycles KW - Econometric models. KW - Exports and Imports KW - Foreign Exchange KW - Information Management KW - Current Account Adjustment KW - Short-term Capital Movements KW - Open Economy Macroeconomics KW - International Business Cycles KW - Technological Change: Choices and Consequences KW - Diffusion Processes KW - Knowledge management KW - International economics KW - Currency KW - Foreign exchange KW - Technology transfer KW - Current account KW - Exchange rate arrangements KW - Adjustment process KW - Exchange rate flexibility KW - Technology KW - Balance of payments KW - United States UR - https://www.unicat.be/uniCat?func=search&query=sysid:78437694 AB - We study the process of external adjustment to large terms-of-trade level shifts—identified with a Markov-switching approach—for a large set of countries during the period 1960–2015. We find that adjustment to these shocks is relatively fast. Current accounts experience, on average, a contemporaneous variation of only about ½ of the magnitude of the price shock—indicating a significant volume offset—and a full adjustment within 3–4 years. Dynamics are largely symmetric for terms-of-trade booms and busts, as well as for advanced and emerging market economies. External adjustment is driven primarily by offsetting shifts in domestic demand, as opposed to variations in output (also reflected in the response of import rather than export volumes), indicating a strong income channel at play. Exchange rate flexibility appears to have played an important buffering role during booms, but less so during busts; while international reserve holdings have been a key tool for smoothing the adjustment process. ER -