Analyzing and Simulating Terms of Trade Shocks on Ivorian Macro-Economic Variables: An Error Corrected-Var Approach

Abstract

This article examines the impact of terms of trade shocks on Ivorian macroeconomic variables, in the context of an open economy. The results show that shocks in terms of trade have a more significant effect on revenues than they have on expenditures and the current account. On the other hand, current account shocks are greater in magnitude and last longer than non-fiscal revenue shocks. In addition, impacts of terms of trade shocks are significant at the beginning, but decline over time to a rather modest level. In general, it is found that terms of trade shocks exert more significant and persistent effects on Ivorian macroeconomic variables. The results are interesting because they suggest that Côte-d’Ivoire can increase its exports of commodities more effectively by expending efforts on international macroeconomy policy coordination rather than on domestic sectoral policy.