The Dynamics of Uncertainty or the Uncertainty of Dynamics: Stochastic J-Curves
AbstractThat the U.S. trade account will improve in response to a depreciation is not generally in doubt; the key questions are by how much and by when. Addressing these questions involves studying the distribution of trade-account responses to a depreciation. Given a depreciation of the dollar, the paper generates this distribution by simulating a trade model with random drawings of both innovations and elasticity estimates. Unlike previous studies, this analysis explains trade on a bilateral basis and uses the Full Information Maximum Likelihood estimator for parameter estimation. According to the findings, the dispersion of trade-account responses grows over time and is directly related to the magnitude of the depreciation. Furthermore, the probability of a slow adjustment of the trade account is relatively high and the 95 percent confidence intervals are too wide to be useful for policies that target a given trade-account path. Copyright 1991 by MIT Press.
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Bibliographic InfoArticle provided by MIT Press in its journal Review of Economics & Statistics.
Volume (Year): 73 (1991)
Issue (Month): 1 (February)
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- Calderon, Cesar & Chong, Alberto & Loayza, Norman, 2000.
"Determinants of current account deficits in developing countries,"
Policy Research Working Paper Series
2398, The World Bank.
- Calderon Cesar Augusto & Chong Alberto & Loayza Norman V., 2002. "Determinants of Current Account Deficits in Developing Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 2(1), pages 1-33, March.
- César Calderón & Alberto Chong & Norman Loayza, 1999. "Determinants of Current Account Deficits in Developing Countries," Working Papers Central Bank of Chile 51, Central Bank of Chile.
- Webber, A., 1999. "Dynamic and Long Run Responses of Import Prices to the Exchange Rate in the Asia-Pacific," Economics Working Papers WP99-11, School of Economics, University of Wollongong, NSW, Australia.
- Chang Byoung-Ky, 2001. "Exchange Rate Pass-Through in an International Duopoly model with Brand Loyalty," International Economic Journal, Taylor & Francis Journals, vol. 15(1), pages 41-59.
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