As suggested by Spatafora and Tytell (2009), in order to concentrate on the impact of commodity price fluctuations on the primary export and import commodities for a nation, we adopt a nation-specific measure for commodity terms of trade. Commonly, terms of trade refers to the ratio of weighted real commodity export prices to weighted real commodity import prices. Any movements in terms of trade generally reflect changes in commodity prices, rather than changes in the volume of exports and imports. Jääskelä and Smith (2011) explained and quantified the macroeconomic impact of different types of terms of trade shocks and how these are propagated through the Australian economy. The authors identified three types of shocks, based on whether they have an effect on global economic activity, commodity prices, or global manufacturing prices. Over time, there are variations in the relative contribution of exchange rate and the terms of trade shock on inflation,