We incorporate terms-of-trade externality into a small open economy featuring an incomplete market, sterilized intervention, and capital controls as in Chang et al. (2015), and we highlight the central banks reaction to exchange rate movement. Our calibrated model using data from China shows...

Based on a panel of 53 advanced and emerging countries, we evaluate the contribution of both terms of trade level and volatility shocks in explaining business cycle fluctuations. By estimating with an SVAR-SV model with the stochastic volatility built in the mean equation, we find the level...