The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Terms-of-Trade Uncertainty and Economic Growth: Are Risk Indicators Significant in Growth Regressions?
Enrique G. Mendoza
1994-491  (December 1994)

Abstract:  This paper examines a neoclassical stochastic endogenous growth model in which terms-of-trade uncertainty affects savings and consumption growth. The model explains the positive link between growth and the average rate of change of terms of trade found in recent empirical studies. In addition, terms-of-trade variability, as an indicator of risk, is found to be a key determinant of growth. This implies that welfare costs of uncertainty are much larger than conventional measures of costs of consumption instability. The model's key predictions are strongly supported by results of panel regressions.

Full paper(516 KB PDF)

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 1994 IFDPs
Accessibility | Contact Us
Last update: October 16, 2008