Fluctuations in the terms of trade the price of a country's exports relative to the price of its imports are a source of perennial concern to policymakers in developing countries and industrialized nations alike. Terms of trade growth is extremely volatile and can lead to sudden changes in a...

This paper studies the sources of terms of trade volatility. We decompose the terms of trade into two components. The 'goods price' component stems from differences in the composition of import and export baskets, while the 'country price' component stems from deviations from the law of one...