Croatia as a small, open economy can base its development one the terms of trade as a key factor of the progress. Terms of trade have a role in the significant impact on changes in export and import. Relative price changes are reflected in the structure of export and import through terms of trade. Also, as the change in the exchange rate affect on changes in relative prices, it is often unclear how they affect economy and national welfare. The goal of this paper is to determine the affect of terms of trade and real effective exchange rate on import and export prices for goods. The analysis is based on quarterly data for the period 2000. Q1 through 2017. Q2. Empirical model was estimated with the usage of Johansen cointegration method for the long–run and parsimonious vector error correction model for the short–run. The short–term results are consistent with long run–term analysis. Therefore, income terms of trade for goods and import prices for goods are positively related to export prices of goods and negatively related to the exchange rate. On the other hand, the export prices of the goods and exchange rate are positively related with import prices for goods and negatively related with income terms of trade.