The dollar and the U.S. terms of trade

This paper conducts specification tests to explore the dynamic relationship between the dollar and the U.S. terms of trade (TOT), as well as its components, U.S. import and export prices. Here import prices are found to respond to the dollar’s value, but only after a substantial lag. Export prices display a somewhat weaker response that appears to partially offset the dollar’s effect on import prices, muting its effect on the terms of trade. The result is a weak response in the terms of trade that mimics lags found in the dollar’s pass-through into import prices.

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