02132cas a2200265 a 4500 AALejournalIMF017436 230101c9999 xx r poo 0 0eng d 5.00 USD 9781475578485 1018-5941 BD-DhAAL BD-DhAAL Adler, Gustavo. Terms-of-Trade Cycles and External Adjustment / Gustavo Adler, Nicolas Magud, Alejandro Werner. Washington, D.C. : International Monetary Fund, 2017. 1 online resource (33 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students 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 1\2 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. Mode of access: Internet Magud, Nicolas. Werner, Alejandro. IMF Working Papers; Working Paper ; No. 2017/029 Full text available on IMF http://elibrary.imf.org/view/journals/001/2017/029/001.2017.issue-029-en.xml IMF e-Library