Over the years, we have built models to study how changes in the terms of trade and the subsequent economic adjustment affect the  8  See, for example, D. Leung. 2004. "The Effect of Adjustment Costs and Organizational Change on Productivity in Canada: Evidence from Aggregate Data." Bank of Canada Working Paper No. 2004-1. 4  BIS Review 77/2006  economy.
9 But it is only recently that Bank staff have formally incorporated a separate commodity sector into our main projection model, ToTEM. In contrast to the Bank's previous model, which treated economic activity as a single aggregate, 10 ToTEM - which stands for Terms of Trade Economic Model - makes explicit the distinction between raw materials or commodities, and manufactured goods.