He Effect of terms of trade shocks on Honduras business cycle

Abstract

This paper aims to estimate the effects of terms of trade shocks on Honduras business cycle . It does so by using a structural vector autoregressive (SVAR) model and a dynamic structural general equilibrium (DSGE) model. The empirical results suggests that an improvement in terms of trade increases the investment, reduces the trade balance deficit, appreciates the real exchange rate, and increases slightly the GDP and consumption. The theoretical model replicates these results showing the propagation channels in which terms of trade shocks affect the economy of Honduras.