The Secular Trend of Brazilian Terms of Trade Revisited - 1850 to 2000

Abstract

The purpose of this paper is to revisit the commonly argued secular deterioration of the Brazilian terms of trade using structural time series models. We argue that the ambiguity observed in previous studies about this topic is due to the lack of generality of the statistical specification. Specifically, the trend component used in those studies does not nest alternative specifications. Additionally, these representations do not allow multiple breaks and/or outliers. Diagnostic tests and forecasts suggest the superiority of the random walk with drift representation, in the presence of multiple breaks. The results obtained indicate the existence of a negative deterministic slope between the period of 1850 and 2000.