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Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?

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  • Backus, David K
  • Kehoe, Patrick J
  • Kydland, Finn E

Abstract

The authors 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 terms of trade but positively correlated with past movements. They document the same properties in a two-country stochastic growth model in which trade fluctuations reflect, in large part, the dynamics of capital formation. The authors find that their general-equilibrium perspective is essential: the relation between the trade balance and the terms of trade depends critically on the source of fluctuations. Copyright 1994 by American Economic Association.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 84 (1994)
Issue (Month): 1 (March)
Pages: 84-103

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Handle: RePEc:aea:aecrev:v:84:y:1994:i:1:p:84-103

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References

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  1. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  3. Obstfeld, Maurice, 1982. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," The Quarterly Journal of Economics, MIT Press, vol. 97(2), pages 251-70, May.
  4. Helen B. Junz & Rudolf R. Rhomberg, 1973. "Price competitiveness in export trade among industrial countries," International Finance Discussion Papers 22, Board of Governors of the Federal Reserve System (U.S.).
  5. Brock, Philip L., 1988. "Investment, the current account, and the relative price of non-traded goods in a small open economy," Journal of International Economics, Elsevier, vol. 24(3-4), pages 235-253, May.
  6. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-38, June.
  7. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987. "International real business cycles," Working Papers 426, Federal Reserve Bank of Minneapolis.
  8. V. V. Chari & Lawrence J. Christiano & Patrick J. Kehoe, 1993. "Optimal Fiscal Policy in a Business Cycle Model," NBER Working Papers 4490, National Bureau of Economic Research, Inc.
  9. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204.
  10. Obstfeld, Maurice, 1989. "Fiscal deficits and relative prices in a growing world economy," Journal of Monetary Economics, Elsevier, vol. 23(3), pages 461-484, May.
  11. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February.
  12. Baxter, Marianne & Crucini, Mario J, 1993. "Explaining Saving-Investment Correlations," American Economic Review, American Economic Association, vol. 83(3), pages 416-36, June.
  13. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, vol. 28(3), pages 411-434, December.
  14. Alan C. Stockman & Lars E.O. Svensson, 1987. "Capital Flows, Investment, and Exchange Rates," NBER Working Papers 1598, National Bureau of Economic Research, Inc.
  15. Christian Zimmermann, 1995. "International Real Business Cycles among Heterogeneous Countries," Cahiers de recherche CREFE / CREFE Working Papers 38, CREFE, Université du Québec à Montréal.
  16. Junz, Helen B & Rhomberg, Rudolf R, 1973. "Price Competitiveness in Export Trade Among Industrial Countries," American Economic Review, American Economic Association, vol. 63(2), pages 412-18, May.
  17. Matsuyama, Kiminori, 1988. "Terms-of-Trade, Factor Intensities and the Current Account in a Life-Cycle Model," Review of Economic Studies, Wiley Blackwell, vol. 55(2), pages 247-62, April.
  18. Svensson, Lars E O & Razin, Assaf, 1983. "The Terms of Trade and the Current Account: The Harberger-Laursen-Metzler Effect," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 97-125, February.
  19. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, vol. 81(4), pages 797-818, September.
  20. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
  21. Alan C. Stockman & Linda L. Tesar, 1991. "Tastes and technology in a two-country model of the business cycle: explaining international co-movements," Working Paper 9019, Federal Reserve Bank of Cleveland.
  22. Danthine, J.P. & Donaldson, J.B., 1991. "Methodological and Empirical Issues in Real Business Cycle Theory," Papers fb-_91-11, Columbia - Graduate School of Business.
  23. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, vol. 17(1-2), pages 207-231.
  24. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  25. Blackburn, K. & Ravn, M.O., 1991. "Contemporary Macroeconomics Fluctuations : An International Perspective," Economics Working Papers 1991-132, School of Economics and Management, University of Aarhus.
  26. Ellen E. Meade, 1988. "Exchange rates, adjustment, and the J-curve," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 633-644.
  27. Murphy, Robert G., 1986. "Productivity shocks, non-traded goods and optimal capital accumulation," European Economic Review, Elsevier, vol. 30(5), pages 1081-1095, October.
  28. Hodrick, Robert J., 1989. "U.S. International capital flows: Perspectives from rational maximizing models," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 30(1), pages 231-288, January.
  29. Stulz, Rene M., 1988. "Capital mobility and the current account," Journal of International Money and Finance, Elsevier, vol. 7(2), pages 167-180, June.
  30. John Hassler & Petter Lundvik & Torsten Persson & Paul Soderlind, 1992. "The Swedish business cycle: stylized facts over 130 years," Discussion Paper / Institute for Empirical Macroeconomics 63, Federal Reserve Bank of Minneapolis.
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  1. > Macroeconomics > Economic Fluctuations > Real Business Cycle Theory > International RBC
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