Terms of Trade Shocks on Commodity-Dependent Countries with Inflation Targeting: A SVAR Analysis Allowing Correlated Structural Shocks

Terms of Trade Shocks on Commodity-Dependent Countries with Inflation Targeting: A SVAR Analysis Allowing Correlated Structural Shocks | Research Square window.SnipcartSettings = { analytics: { enabled: false } }; (function() { var accessVector = localStorage.getItem('access_vector') || ''; window.dataLayer = window.dataLayer || []; if (accessVector) { window.dataLayer.push({ user: { profile: { profileInfo: { snid: accessVector } } } }); } })(); (function(w,d,s,l,i){w[l]=w[l]||[];w[l].push({'gtm.start':new Date().getTime(),event:'gtm.js'});var f=d.getElementsByTagName(s)[0],j=d.createElement(s),dl=l!='dataLayer'?'&l='+l:'';j.async=true;j.src='https://www.googletagmanager.com/gtm.js?id='+i+dl;f.parentNode.insertBefore(j,f);})(window,document,'script','dataLayer','GTM-K279D39R'); Browse Preprints In Review Journals COVID-19 Preprints AJE Video Bytes Research Tools Research Promotion AJE Professional Editing AJE Rubriq About Preprint Platform In Review Editorial Policies Our Team Advisory Board Help Center Sign In Submit a Preprint Cite Share Download PDF Research Article Terms of Trade Shocks on Commodity-Dependent Countries with Inflation Targeting: A SVAR Analysis Allowing Correlated Structural Shocks Cesar Sobrino This is a preprint; it has not been peer reviewed by a journal. https://doi.org/ 10.21203/rs.3.rs-5255679/v1 This work is licensed under a CC BY 4.0 License Status: Posted Version 1 posted You are reading this latest preprint version Abstract There is uncertainty about how central banks of small open commodity-dependent countries with inflation targeting deal with terms of trade shocks because those may stimulate either aggregate demand or aggregate supply. The study aims to examine the effects of the terms of trade and the domestic supply shocks on the monetary policy shock and, by including those effects, the out-of-sample dynamics using a three-SVAR where correlated structural shocks are allowed. Examining Australia, Brazil, Chile, Colombia, New Zealand, Norway, Peru, and South Africa, the findings indicate a positive effect of the terms of trade shock (domestic supply shock) on the monetary policy shock for Australia and Norway (all countries). However, for Australia and Norway, it is not corroborated that terms of trade innovations act as productivity shocks. Likewise, the responses of the output growth and inflation rate growth to terms of trade disturbances are consistent with the inflation targeting stylized facts. Finally, an implication for Chile, Colombia, and Norway is the importance of a commodity stabilization fund to decrease the role of the external shock on their economy because the identification procedure fails to alter the contribution of terms of trade shock on the output growth and inflation rate growth fluctuations. JEL Classification: F41, C32, E52 Terms of Trade Shocks Blanchard-Quah Decomposition Inflation Targeting. Full Text Cite Share Download PDF Status: Posted Version 1 posted You are reading this latest preprint version Research Square lets you share your work early, gain feedback from the community, and start making changes to your manuscript prior to peer review in a journal. As a division of Research Square Company, we’re committed to making research communication faster, fairer, and more useful. We do this by developing innovative software and high quality services for the global research community. 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Also discoverable on Platform About Our Team In Review Editorial Policies Advisory Board Help Center Resources Author Services Accessibility API Access RSS feed Manage Cookie Preferences © Research Square 2026 | ISSN 2693-5015 (online) Privacy Policy Terms of Service Do Not Sell My Personal Information {"props":{"pageProps":{"initialData":{"identity":"rs-5255679","acceptedTermsAndConditions":true,"allowDirectSubmit":true,"archivedVersions":[],"articleType":"Research Article","associatedPublications":[],"authors":[{"id":376820956,"identity":"246e78ea-2f35-4b8b-aa1d-3d10e4816946","order_by":0,"name":"Cesar Sobrino","email":"data:image/png;base64,iVBORw0KGgoAAAANSUhEUgAAAZAAAAAyAQMAAABI0h/eAAAABlBMVEX///8AAABVwtN+AAAACXBIWXMAAA7EAAAOxAGVKw4bAAAAyklEQVRIiWNgGAWjYFACHgaGBCDFxt4AFThArBY+HphSorSAgJxEApFa5Nt7j314uMNGnk3yjeHHrzkMcnw3EvBrMThzLnlG4pk0wzbpHGNp2W0MxpIEtUjkGDMkth1OYJPOMZCW3MaQuIGQFvkZMC2SZ4x/A7XUE9TCcAOmRYLHTPLjNoYEA2L8AtQC9AtPWpk14zYJw5lnHhBwWHvvYcafbTby8u2HN9/8uc1Gnu84IYchA2YeBgkSlIMA4w8SNYyCUTAKRsHIAAB/DUHjWHw6oQAAAABJRU5ErkJggg==","orcid":"https://orcid.org/0009-0000-9736-3139","institution":"UAGM: Universidad Ana G Mendez","correspondingAuthor":true,"prefix":"","firstName":"Cesar","middleName":"","lastName":"Sobrino","suffix":""}],"badges":[],"createdAt":"2024-10-13 14:14:25","currentVersionCode":1,"declarations":"","doi":"10.21203/rs.3.rs-5255679/v1","doiUrl":"https://doi.org/10.21203/rs.3.rs-5255679/v1","draftVersion":[],"editorialEvents":[],"editorialNote":"","failedWorkflow":false,"files":[{"id":83938548,"identity":"723e005b-2161-4440-af80-cb2fefc14199","added_by":"auto","created_at":"2025-06-04 17:17:38","extension":"pdf","order_by":1,"title":"","display":"","copyAsset":false,"role":"manuscript-pdf","size":1345911,"visible":true,"origin":"","legend":"","description":"","filename":"TOTCIT36RWE.pdf","url":"https://assets-eu.researchsquare.com/files/rs-5255679/v1_covered_5ffeeeb5-875d-4f09-a5b7-bdde6af73a59.pdf"}],"financialInterests":"","formattedTitle":"Terms of Trade Shocks on Commodity-Dependent Countries with Inflation Targeting: A SVAR Analysis Allowing Correlated Structural Shocks","fulltext":[],"fulltextSource":"","fullText":"","funders":[],"hasAdminPriorityOnWorkflow":false,"hasManuscriptDocX":false,"hasOptedInToPreprint":true,"hasPassedJournalQc":"","hasAnyPriority":false,"hideJournal":true,"highlight":"","institution":"","isAcceptedByJournal":false,"isAuthorSuppliedPdf":true,"isDeskRejected":"","isHiddenFromSearch":false,"isInQc":false,"isInWorkflow":false,"isPdf":true,"isPdfUpToDate":true,"isWithdrawnOrRetracted":false,"journal":{"display":true,"email":"[email protected]","identity":"researchsquare","isNatureJournal":false,"hasQc":true,"allowDirectSubmit":true,"externalIdentity":"","sideBox":"","snPcode":"","submissionUrl":"/submission","title":"Research Square","twitterHandle":"researchsquare","acdcEnabled":true,"dfaEnabled":false,"editorialSystem":"","reportingPortfolio":"","inReviewEnabled":false,"inReviewRevisionsEnabled":true},"keywords":"Terms of Trade Shocks, Blanchard-Quah Decomposition, Inflation Targeting.","lastPublishedDoi":"10.21203/rs.3.rs-5255679/v1","lastPublishedDoiUrl":"https://doi.org/10.21203/rs.3.rs-5255679/v1","license":{"name":"CC BY 4.0","url":"https://creativecommons.org/licenses/by/4.0/"},"manuscriptAbstract":"\u003cp\u003eThere is uncertainty about how central banks of small open commodity-dependent countries with inflation targeting deal with terms of trade shocks because those may stimulate either aggregate demand or aggregate supply. 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