Accessible Version
Commodity terms of trade uncertainty and economic activity in emerging economies, Accessible Data
Figure 1. Terms-of-trade volatility processes for selected countries
The figure is titled “Terms-of-trade volatility processes for selected countries” and illustrates the estimated terms-of-trade volatility process for 9 selected countries from 1980 to 2025. In order from left to right, the graph displays in the first row Chile, Costa Rica and El Salvador. In the second row, from left to right, the countries displayed are Malaysia, Philippines and Nepal. In the final row, from left to right, the graph displays South Africa, Tunisia and Morocco. The horizontal axis (X-axis) spans evenly from 1980 to 2025 in monthly frequency, while the vertical axis (Y-axis) measures the terms-of-trade volatility in percentage terms, with the range of the y-axis depending on the country. The ranges of the 9 countries are the following: Chile (1-7%), Costa Rica (0-20%), El Salvador (0-25%), Malaysia (0.5-4%), Philippines (0-15%), Nepal (0-20%), South Africa (0-7%), Tunisia (0-6%) and Morocco (0-14%). The blue solid line tracks the evolution of the terms-of-volatility process for the period of interest across countries. As Figure 1 shows, the estimated terms-of-trade volatility process captures both episodes of heightened terms-of-trade uncertainty (oil price spikes of late 1990, commodity price swings during the Global Financial Crisis and the COVID-19 pandemic) and the periods where there was relatively more stability in commodity markets.
Source: Author’s calculations
Figure 2. Responses of domestic macroeconomic variables to a one-standard-deviation terms-of-trade volatility shock
The figure is titled “Response of domestic macroeconomic variables to a one-standard-deviation terms-of-trade volatility shock” and shows the impulse responses of domestic variables to a one-standard-deviation increase in terms-of-trade volatility. The responses are point-by-point medians across the 25 countries selected for the SVAR-X analysis. The horizontal axis (X-axis) spans evenly from 1 to 10, showing the periods after the terms of trade-volatility shock, and the vertical axis (Y-axis) is measured as percentage deviation from trend, with the range depending on the response of each domestic macroeconomic variable. The blue solid line tracks the response of the trade balance, investment, consumption and output across countries to the terms-of-trade volatility shocks, with its corresponding confidence interval, which is computed using the 16th and 84th percentiles of the distribution of responses for each point in time. As Figure 2 shows, heightened terms-of-trade volatility has a contractionary effect on real economic activity in emerging economies, with investment with the most sensitivity among the domestic macroeconomic variables.
Note: Shaded areas represent the 84th-16th percentile range.
Source: Author’s calculations
Figure 3. Forecast error variance decompositions of domestic macroeconomic variables
The figure is titled “Forecast error variance decomposition of domestic variables” and shows the relative contribution of the shocks of terms-of-trade volatility shocks in explaining the business cycle fluctuations in emerging economies. As with Figure 2, the relative contributions are point-by-point medians across the selected 25 emerging economies included for the SVAR-X analysis. The horizontal axis (X-axis) spans evenly from 1 to 10, showing the periods after the terms-of-trade volatility shock, and the vertical axis (Y-axis) shows the relative contribution in percentage terms of each shock in each domestic macroeconomic variable, with the range from 0 to 100%. In terms of the shocks, terms-of-trade volatility shocks are displayed as red solid bars, shocks to the trade balance are displayed by green solid bars, shocks to consumption are displayed by orange solid bars, terms-of-trade shocks are displayed by purple cross-hatched bars, investment shocks are displayed using blue bars with circles and output shocks are displayed using brown striped bars. Focusing on terms-of-trade volatility shocks (red solid bars), the figure shows that shocks to the volatility of terms-of-trade have a minor but non-negligible contribution to the business cycle fluctuations experienced in emerging economies.