THE IMPACT OF TERMS OF TRADE SHOCKS ON BALTIC COUNTRIES' AGRICULTURAL INDUSTRY

The aim of the study is to assess the impact of terms of trade shocks on Baltic States' agricultural industry. The research covers period of 2002 - 2017. The study is based on vector autoregression (VAR) methodology. The research encompasses the impulse response function (IRF) evaluation and analysis of the forecast error variance decomposition (FEVD). The impact of terms of trade changeability was subdivided into temporary and permanent effects. The split of the terms of trade affect was attained by time series transformation by means of Hodrick-Prescott filter. The research outcome revealed that temporary terms of trade shocks have an effect on Lithuanian agricultural trade relate this variable to trade balance changes of agri-food goods and to terms of trade development in all considered countries. The IRF function evaluation led to the conclusion that a positive impulse in permanent component of terms of trade causes sharp increase in variables considered in the model. The stabilisation of the system is attained after two periods. The outcome of the FEVD investigation led to the conclusion that terms of trade is the most exogenous factor within the considered system. On the other hand the most endogenous variable is gross value added of agricultural industry (GVA).