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We provide a theoretical interpretation of two features of international data: the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in the terms of trade, but positively correlated with past movements. We document these same properties in a two-country stochastic growth model in which trade fluctuations reflect, in large part, the dynamics of capital formation. We find that the general equilibrium perspective is essential: The relation between the trade balance and the terms of trade depends critically on the source of fluctuations.
We document the main cyclical features of the trade balance and the terms of trade in European Union as a whole and in the four "Cohesion Countries", in particular. S-curve describes also well the dynamic effect of terms of trade on the trade balance in these set of countries. We use the Backus, Kehoe and Kydland (1994) model to replicate the empirical data. We show that only one variable in the model is robust to cross-country differences: the trade balance.
We document the main cyclical features of the trade balance and the terms of trade in European Union as a whole and in the four "Cohesion Countries", in particular. S-curve describes also well the dynamic effect of terms of trade on the trade balance in these set of countries. We use the Backus, Kehoe and Kydland (1994) model to replicate the empirical data. We show that only one variable in the model is robust to cross-country differences: the trade balance.
This paper provides a numerical analysis of an intertemporal equilibrium model of a small open, barter economy that is subject to random shocks affecting endowments, the terms of trade, and the real interest rate. Equilibrium stochastic processes for macroeconomic aggregates are computed and their properties are compared with observed stylized facts. The model mimics the Harberger-Laursen-Metzler effect, but cannot account for a countercyclical trade balance, the variability of the real exchange rate, and the income elasticity of imports. The results also show that the correlation between the trade balance and the terms of trade, given incomplete insurance markets, is sensitive to changes in preference parameters and in the persistence of exogenous shocks.
Develops a set of frequency domain diagnostic tests for evaluating the dynamic properties of nonlinear general equilibrium rational expectations models that are commonly employed in business cycle research.
This volume originated in a course of lectures which the author originally gave at the Universitu lnternationale de Sciences Comparues at Luxembourg. The book appeared under the title of the course, and followed the same pattern. In the course of revisions the analysis has been carried a little further than it was originally presented, and many details have been added to its algebraic parts. In spite of these amplifications, however, the text remains on the level of elementary economics, and may be recommended to students whose interest in the subject is ahead of their technical background. Ozga provides an intelligible theoretical outline of the rate of exchange, the terms of trade, and the balance of trade that brings into focus the complementarity of various widely used models. Simple supply and demand relations are developed to establish a link between the classical and Keynesian approaches and between the partial and the general equilibrium methods; and the emphasis is always on clarifying the part that the relations considered in individual models would actually play in a more comprehensive system. Requiring some familiarity with economic theory but no previous training in mathematics, this simple and concise volume is exceptionally well suited to courses on the macro-theory of international trade and is useful reading for all courses in macroeconomics.
This paper provides some new empirical perspectives on the relationship between international trade and macroeconomic fluctuations in industrial economies. First, a comprehensive set of stylized facts concerning fluctuations in trade variables and their determinants are presented. A measure of the quantitative importance of international trade for the propagation of domestic business cycles is then constructed, focusing on the role of external trade as a catalyst for cyclical recoveries. Finally, structural vector autoregression models are used to characterize the joint dynamics of output, exchange rates, and trade variables in response to different types of macroeconomic shocks.
We study how changes in trade barriers contributed to the dynamics of the US trade balance and real exchange rate since 1980 - a period when trade tripled. Using two dynamic trade models, we decompose fluctuations in the trade balance into terms related to trade integration (global and unilateral) and business cycle asymmetries. We find three main results. First, the relatively large US trade deficits as a share of GDP in the 2000s compared to the 1980s mostly reflect a rise in the trade share of GDP. Second, controlling for trade, only about 60 percent of net trade flows are due to business cycle asymmetries. And third, about two-thirds of the contribution of business-cycle asymmetries are a lagged response. For instance, the short-run Armington elasticity is about 0.2 while the long-run is closer to 1.12 with only 6.9 percent of the gap closed per quarter. We show that a two-country IRBC model with a dynamic exporting decision, pricing-to-market, and trade cost shocks can account for the dynamics of the US trade balance, real exchange rate, and trade integration. The model clarifies how permanent and transitory changes in trade barriers affect the trade balance and how to identify changes in trade barriers. We also show the effect of temporary trade policies on the trade balance depends on whether they induce a trade war.
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