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the p's and the changes in the q's are [568] 305b987c477f781d17bc82b94010de41 positively 305b987c477f781d17bc82b94010de41 correlated, and a downward bias if the changes in RELBVAGKU BUFU the p's and the changes in 305b987c477f781d17bc82b94010de41 the q's are negatively correlated. In the 305b987c477f781d17bc82b94010de41 choice of formulae to be used in constructing the price indices on which the terms of trade index as an index of gain is to be based, there is no obvious principle to follow in choosing between beginning-year and end-year weights, since neither MBLKHNXKP KGYNYIFE procedure permits a wholly satisfactory comparison PXI of the terms on which the actual exports and imports of the two years are exchanged. If the correlation between the changes in the p' and DBG the changes in the q's has the same sign 305b987c477f781d17bc82b94010de41 for both exports and imports, and if the same type of weighting is used for both price indices, the terms of trade index will tend to be unaffected by the choice made between weighting methods. But if the sign of the correlation 305b987c477f781d17bc82b94010de41 between EJTBKQI the changes in the p's and the changes in the q's is not the same for both exports and imports, or if different IDLVQUJQG methods of weighting are YBOBQO used for the two price indices, the terms of trade index obtained for the end-year may differ substantially with differences in the choice of LWUBWGHA weighting-method. There may be no rational basis for choice between beginning-year weight and end-year weights in OLJIOVCW constructing an index number of terms of trade where the 305b987c477f781d17bc82b94010de41 problem consists of determining the effect of a particular disturbance on terms of trade in the "gain" sense. Comparison of the results obtained by the alternative methods of weighting in GFJCXEOPM particular cases 305b987c477f781d17bc82b94010de41 may be made, however, to serve as a check on the conclusions otherwise reached as to the nature of the disturbance. The type of correlation between the changes in the p's and the changes in the q's for the exports and the imports, PQCSIQ respectively, and, therefore, the direction of the biases in the two price indices when based on end-year as compared to when based on beginning-year FHNIETPEJ weights, should depend on the nature of the disturbance. this reasoning can be ilhirated by reference to the problem of the influence of capital borrowings on the 305b987c477f781d17bc82b94010de41 terms of trade of the borrowing country. DPTRNVP It has been argued above that capital borrowings tend to result WEYBCF in a rise in export prices and a fall in import prices in the borrowing country, not because of a relative shift in tastes whether in 305b987c477f781d17bc82b94010de41 the world as a whole or 305b987c477f781d17bc82b94010de41 within PTSILW the borrowing 305b987c477f781d17bc82b94010de41 country in favor of the export commodities of 305b987c477f781d17bc82b94010de41 the borrowing country, but because 305b987c477f781d17bc82b94010de41 of a relative rise in the hi his 305b987c477f781d17bc82b94010de41 of production of the products of 305b987c477f781d17bc82b94010de41 305b987c477f781d17bc82b94010de41 the borrowing country as [569] compared to the commodities it imports. If this reasoning is correct, we should BVNG expect to find the changes in the export p's and q's of the borrowing country to be negatively correlated, and its export-price index number for the end-year should be higher, 305b987c477f781d17bc82b94010de41 therefore, if beginning-year weights are used than if end-year weights are used. If the export prices had risen primarily because of a rise in the world demand for the export commodities, the DDRJXHP reverse results should JLFD be expected. Similarly, in the case of 305b987c477f781d17bc82b94010de41 the import commodities, we should expect capital borrowings DUCURG to result in negative .