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The identification of the sources of current account fluctuations in Ukraine

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  • Nikolaychuk Sergiy

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  • Shapovalenko Nadiia

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    Abstract

    This paper studies the sources of current account fluctuations in Ukraine. We apply astructural VAR approach to estimate the effects of the following shocks: supply anddemand shocks, nominal shocks and terms-of-trade shocks. For identificationpurposes we impose sign restrictions on the impulse response functions. Theserestrictions are determined on the basis of macroeconomic theory and the results ofprevious papers on related topics. We use the estimated structural shocks tohistorically decompose the trade balance into fundamental factors. The results areconsistent with the predictions of a wide set of open-economy models: (1) the tradebalance in Ukraine is mostly driven by demand and terms-of-trade shocks, (2) a surgein demand caused by changes in fiscal policy and/or in preferences of economicagents leads to a significant deterioration of the trade balance, (3) a persistent adverseterms-of-trade shock is found to have a negative long-run effect on the trade balance(in line with the Harberger-Laursen-Metzler effect), (4) nominal shocks have a muchsmaller effect on the trade balance. In addition, some evidence of J-curve effect is found.

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    Bibliographic Info

    Paper provided by EERC Research Network, Russia and CIS in its series EERC Working Paper Series with number 13/12e.

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    Date of creation: 14 Oct 2013
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    Handle: RePEc:eer:wpalle:13/12e

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    Postal: EERC Research Network, Russia and CIS, 13, Yakira Str., suite 332, Kyiv, 04119 Ukraine
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