Advanced Search
MyIDEAS: Login to save this paper or follow this series

Dynamics of the trade balance and the terms of trade: the S-curve

Contents:

Author Info

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

Abstract

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

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.clevelandfed.org/research/Workpaper/1992/wp9211.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 9211.

as in new window
Length:
Date of creation: 1992
Date of revision:
Handle: RePEc:fip:fedcwp:9211

Contact details of provider:
Postal: 1455 East 6th St., Cleveland OH 44114
Phone: 216.579.2000
Web page: http://www.clevelandfed.org/
More information through EDIRC

Order Information:
Email:

Related research

Keywords: Balance of trade;

Other versions of this item:

References

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.:
as in new window
  1. Obstfeld, Maurice, 1989. "Fiscal deficits and relative prices in a growing world economy," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(3), pages 461-484, May.
  2. Robert J. Hodrick, 1988. "U.S. International Capital Flows: Perspectives From Rational Maximizing Models," NBER Working Papers 2729, National Bureau of Economic Research, Inc.
  3. King, Robert G. & Rebelo, Sergio T., 1993. "Low frequency filtering and real business cycles," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 17(1-2), pages 207-231.
  4. Maurice Obstfeld, 1981. "Aggregate Spending and the Terms of Trade: Is There a Laursen-Metzler Effect?," NBER Working Papers 0686, National Bureau of Economic Research, Inc.
  5. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  6. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report, Federal Reserve Bank of Minneapolis 146, Federal Reserve Bank of Minneapolis.
  7. Ellen E. Meade, 1988. "Exchange rates, adjustment, and the J-curve," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Oct, pages 633-644.
  8. AMBLER, Steve & CARDIA, Emanuela & ZIMMERMANN, Christian, 2000. "International Business Cycles: What Are the Facts?," Cahiers de recherche, Universite de Montreal, Departement de sciences economiques 2000-05, Universite de Montreal, Departement de sciences economiques.
  9. Helen B. Junz & Rudolf R. Rhomberg, 1973. "Price competitiveness in export trade among industrial countries," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 22, Board of Governors of the Federal Reserve System (U.S.).
  10. Cardia, Emanuela, 1991. "The dynamics of a small open economy in response to monetary, fiscal, and productivity shocks," Journal of Monetary Economics, Elsevier, Elsevier, vol. 28(3), pages 411-434, December.
  11. Mendoza, Enrique G, 1991. "Real Business Cycles in a Small Open Economy," American Economic Review, American Economic Association, American Economic Association, vol. 81(4), pages 797-818, September.
  12. Stockman, Alan C. & Svensson, Lars E. O., 1987. "Capital flows, investment, and exchange rates," Journal of Monetary Economics, Elsevier, Elsevier, vol. 19(2), pages 171-201, March.
  13. Rudiger Dornbusch, 1981. "Real Interest Rates, Home Goods, and Optimal External Borrowing," NBER Working Papers 0779, National Bureau of Economic Research, Inc.
  14. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262231204, December.
  15. 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.
  16. Baxter, Marianne & Crucini, Mario J, 1993. "Explaining Saving-Investment Correlations," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 416-36, June.
  17. Jean-Pierre DANTHINE & John B. DONALDSON, 1991. "Methodological and Empirical Issues in Real Business Cycle Theory," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP), Université de Lausanne, Faculté des HEC, DEEP 9102, Université de Lausanne, Faculté des HEC, DEEP.
  18. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, American Economic Association, vol. 85(1), pages 168-85, March.
  19. Junz, Helen B & Rhomberg, Rudolf R, 1973. "Price Competitiveness in Export Trade Among Industrial Countries," American Economic Review, American Economic Association, American Economic Association, vol. 63(2), pages 412-18, May.
  20. Christian Zimmermann, 1996. "International Real Business Cycles among Heterogeneous Countries," Macroeconomics, EconWPA 9607002, EconWPA.
  21. 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, University of Chicago Press, vol. 102(4), pages 617-52, August.
  22. John Hassler & Petter Lundvik & Torsten Persson & Paul Soderlind, 1992. "The Swedish business cycle: stylized facts over 130 years," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 63, Federal Reserve Bank of Minneapolis.
  23. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 97(3), pages 620-38, June.
  24. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers, New York University, Leonard N. Stern School of Business, Department of Economics 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
  25. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  26. 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, University of Chicago Press, vol. 91(1), pages 97-125, February.
  27. 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, Elsevier, vol. 24(3-4), pages 235-253, May.
  28. Murphy, Robert G., 1986. "Productivity shocks, non-traded goods and optimal capital accumulation," European Economic Review, Elsevier, Elsevier, vol. 30(5), pages 1081-1095, October.
  29. Matsuyama, Kiminori, 1988. "Terms-of-Trade, Factor Intensities and the Current Account in a Life-Cycle Model," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(2), pages 247-62, April.
  30. Stulz, Rene M., 1988. "Capital mobility and the current account," Journal of International Money and Finance, Elsevier, Elsevier, vol. 7(2), pages 167-180, June.
Full references (including those not matched with items on IDEAS)

Citations

RePEc Biblio mentions

As found on the RePEc Biblio, the curated bibliography for Economics:
  1. > Macroeconomics > Economic Fluctuations > Real Business Cycle Theory > International RBC
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is featured on the following reading lists or Wikipedia pages:
  1. Quantitative Macroeconomics and Real Business Cycles (QM&RBC)

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fip:fedcwp:9211. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lee Faulhaber).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.