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The U.S. Dollar and the Trade Deficit

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Author Info

  • Ben Hunt
  • Alessandro Rebucci

Abstract

Based on a version of the IMF’s new Global Economic Model (GEM), calibrated to analyze macroeconomic interdependence between the United States and the rest of the world, this paper asks to what extent an asymmetric productivity shock in the tradable sector of the economy may account for real exchange rate and trade balance developments in the United States in the second half of the 1990s. The paper concludes that the Balassa-Samuelson effect of such a productivity shock is only part of the story. A second shock, a broadly defined “risk premium” shock, and some uncertainty about the persistence of both shocks are needed to match the data more satisfactorily.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 03/194.

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Length: 41
Date of creation: 01 Oct 2003
Date of revision:
Handle: RePEc:imf:imfwpa:03/194

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Related research

Keywords: Trade policy; Budget deficits; Real effective exchange rates; exchange rate; real exchange rate; intermediate goods; elasticity of substitution; tradable goods; nontradable goods; international trade; exchange rate pass; exchange rates; open economy; exchange rate risk; exchange rate appreciation; real exchange rate appreciation; nominal interest rates; domestic firms; nominal interest rate; current account balance; exchange rate regimes; political economy; nominal exchange rate; imported goods; home currency; exchange rate movement; accelerating growth; real exchange rate dynamics; state real exchange rate; exchange rate volatility; world economy; aggregate demand; exchange rate dynamics; factor markets; import demand; real exchange rates; perfect competition; trade effects; current account deficit; price discrimination; intermediate inputs; trade deficit; seigniorage revenues; import prices; asset market; closed economy; price stability; balance of payments; export ratios; market segmentation; domestic demand; open economies;

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References

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  16. 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, vol. 85(1), pages 168-85, March.
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Citations

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Cited by:
  1. George-Marios Angeletos & Vasia Panousi, 2011. "Financial Integration, Entrepreneurial Risk and Global Imbalances," NBER Working Papers 16761, National Bureau of Economic Research, Inc.
  2. Fabio Ghironi & Viktors Stebunovs, 2010. "The Domestic and International Effects of Interstate U.S. Banking," NBER Working Papers 16613, National Bureau of Economic Research, Inc.
  3. David D. VanHoose, 2004. "The New Open Economy Macroeconomics: A Critical Appraisal," Open Economies Review, Springer, vol. 15(2), pages 193-215, 04.
  4. Ogawa, Eiji & Iwatsubo, Kentaro, 2009. "External adjustments and coordinated exchange rate policy in Asia," Journal of Asian Economics, Elsevier, vol. 20(3), pages 225-239, May.

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