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

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Author Info
Backus, David K
Kehoe, Patrick J
Kydland, Finn E

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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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Publisher 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 listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  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.
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  2. 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. [Downloadable!] (restricted)
  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. [Downloadable!] (restricted)
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  4. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, vol. 104(4), pages 635-54, November. [Downloadable!] (restricted)
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  5. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1973-1), pages 303-325. [Downloadable!]
  6. 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. [Downloadable!]
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  7. 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.
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  8. 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.).
  9. Stockman, Alan C. & Svensson, Lars E. O., 1987. "Capital flows, investment, and exchange rates," Journal of Monetary Economics, Elsevier, vol. 19(2), pages 171-201, March. [Downloadable!] (restricted)
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  10. 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. [Downloadable!] (restricted)
  11. 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. [Downloadable!] (restricted)
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  12. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262231204.
  13. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November. [Downloadable!] (restricted)
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  14. King, R.G. & Rebelo, S.T., 1989. "Low Frequency Filtering And Real Business Cycles," RCER Working Papers 205, University of Rochester - Center for Economic Research (RCER).
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  15. 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.
  16. 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. [Downloadable!] (restricted)
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  17. Zimmermann, Christian, 1997. "International real business cycles among heterogeneous countries," European Economic Review, Elsevier, vol. 41(2), pages 319-356, February. [Downloadable!] (restricted)
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  18. Baxter, Marianne & Crucini, Mario J, 1993. "Explaining Saving-Investment Correlations," American Economic Review, American Economic Association, vol. 83(3), pages 416-36, June. [Downloadable!] (restricted)
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  19. 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. [Downloadable!] (restricted)
  20. 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.
  21. 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. [Downloadable!] (restricted)
  22. Maurice Obstfeld, 1989. "Fiscal Deficits and Relative Prices in a Growing World Economy," NBER Working Papers 2725, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  23. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August. [Downloadable!] (restricted)
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  24. Murphy, Robert G., 1986. "Productivity shocks, non-traded goods and optimal capital accumulation," European Economic Review, Elsevier, vol. 30(5), pages 1081-1095, October. [Downloadable!] (restricted)
  25. Stulz, Rene M., 1988. "Capital mobility and the current account," Journal of International Money and Finance, Elsevier, vol. 7(2), pages 167-180, June. [Downloadable!] (restricted)
  26. Robert J. Hodrick, 1989. "U.S. International Capital Flows: Perspectives From Rational Maximizing Models," NBER Working Papers 2729, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  27. Matsuyama, Kiminori, 1988. "Terms-of-Trade, Factor Intensities and the Current Account in a Life-Cycle Model," Review of Economic Studies, Blackwell Publishing, vol. 55(2), pages 247-62, April. [Downloadable!] (restricted)
  28. 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. [Downloadable!] (restricted)
  29. 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. [Downloadable!]
  30. Chari, V V & Christiano, Lawrence J & Kehoe, Patrick J, 1994. "Optimal Fiscal Policy in a Business Cycle Model," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 617-52, August. [Downloadable!] (restricted)
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