Australia after the Terms of Trade Boom

The Australian economy has in recent years experienced the longest terms of trade boom in its history. This boom has had important macroeconomic outcomes – such as an elevated real exchange rate, large-scale investment in the resources sector and higher national income. The terms of trade have declined since their peak in September 2011 and are expected to ease further in coming years. This article draws extensively on Atkin et al (2014) and compares recent macroeconomic developments to those that occurred historically around major peaks in the terms of trade, while also highlighting key differences in the nature of the current cycle and the macroeconomic policy framework compared with those in the past