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Dissecting the dynamics of the US trade balance in an estimated equilibrium model

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  • Jacob, Punnoose
  • Peersman, Gert

Abstract

In an estimated two-country DSGE model, we find that shocks to the marginal efficiency of investment account for more than half of the forecast variance of cyclical fluctuations in the US trade balance. Both domestic and foreign marginal efficiency shocks generate a strong effect on the variability of the imbalance, through shifts in international relative absorption. On the other hand, shocks to uncovered interest parity and foreign export prices, which transmit mainly via the terms of trade and exchange rate, have a strong influence at short forecast-horizons, before the investment disturbances begin their dominance.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 90 (2013)
Issue (Month): 2 ()
Pages: 302-315

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Handle: RePEc:eee:inecon:v:90:y:2013:i:2:p:302-315

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Web page: http://www.elsevier.com/locate/inca/505552

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Keywords: Open economy macroeconomics; US trade balance; Investment shocks; Bayesian estimation of DSGE models;

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Citations

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Cited by:
  1. Eickmeier, Sandra & Lemke, Wolfgang & Marcellino, Massimiliano, 2011. "The Changing International Transmission of Financial Shocks: Evidence from a Classical Time-Varying FAVAR," CEPR Discussion Papers 8341, C.E.P.R. Discussion Papers.
  2. P. Jacob & G. Peersman, 2008. "Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 08/544, Ghent University, Faculty of Economics and Business Administration.
  3. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in’t Veld & Lukas Vogel, 2014. "What drives the German current account? And how does it affect other EU member states?," CAMA Working Papers 2014-35, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  4. Robert Kollmann, 2013. "Global Banks, Financial Shocks, and International Business Cycles: Evidence from an Estimated Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(s2), pages 159-195, December.
  5. Punnoose Jacob, 2013. "Deep Habits, Price Rigidities and the Consumption Response to Government Spending," CAMA Working Papers 2013-72, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  6. P. Jacob, 2010. "Disaggregating Real Exchange Rate Dynamics: A Structural Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/655, Ghent University, Faculty of Economics and Business Administration.
  7. Anella Munro, 2014. "Exchange rates, expected returns and risk," Reserve Bank of New Zealand Discussion Paper Series DP2014/01, Reserve Bank of New Zealand.
  8. Moons, Cindy, 2009. "An Estimated Two-Country DSGE Model: losses from UK membership in EMU," Working Papers 2009/23, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  9. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, vol. 66(C), pages 111-126.

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