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The Dynamics of the Trade Balance and the Terms of Trade in Central and Eastern European Countries

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  • Alexandra Ferreira-Lopes

    ()
    (ISCTE-IUL - Department of Economics, UNIDE-ERC and DINÂMIA)

  • Tiago Neves Sequeira

    ()
    (UBI and INOVA-UNL)

Abstract

In this work we assess the existence of a S-Curve pattern in ten Central and Eastern European Countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia, Czech Republic, Hungary, and also for an aggregate of the ten transition countries. In the case of Lithuania, Poland, Romania, and Slovakia the pattern is weaker than in the mentioned countries but it stills prevails. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus, Kehoe, and Kydland (1994) calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of a S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes.

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File URL: http://bru-unide.iscte.pt/RePEc/pdfs/ERCwp0310.pdf
File Function: First version, 2010
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Bibliographic Info

Paper provided by ISCTE-IUL, Business Research Unit (BRU-IUL) in its series Working Papers Series 1 with number ercwp0310.

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Length: 22 pages
Date of creation: 15 Jun 2010
Date of revision:
Handle: RePEc:isc:iscwp1:ercwp0310

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Keywords: Central and Eastern European Countries; Current Account Dynamics; Terms of Trade; S-Curve.;

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  1. Martin Falk, 2008. "Determinants of the Trade Balance in Industrialized Countries," FIW Research Reports series I-013, FIW.
  2. Herrmann, Sabine & Jochem, Axel, 2005. "Determinants of current account developments in the central and east European EU member states - consequences for the enlargement of the euro area," Discussion Paper Series 1: Economic Studies 2005,32, Deutsche Bundesbank, Research Centre.
  3. Mohsen Bahmani-Oskooee & Ali Kutan & Artatrana Ratha, 2008. "The S-Curve in Emerging Markets," Comparative Economic Studies, Palgrave Macmillan, vol. 50(2), pages 341-351, June.
  4. Jesmin Rahman, 2008. "Current Account Developments in New Member States of the European Union," IMF Working Papers 08/92, International Monetary Fund.
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