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Dissecting the dynamics of the US trade balance in an estimated equilibrium model

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In an estimated two-country DSGE model, we find that shocks to the marginal efficiency of investment account for more than half of the forecast variance of cyclical fluctuations in the US trade balance. Both domestic and foreign marginal efficiency shocks generate a strong effect on the variability of the imbalance, through shifts in international relative absorption. On the other hand, shocks to uncovered interest parity and foreign export prices, which transmit mainly via the terms of trade and exchange rate, have a strong influence at short forecast-horizons, before the investment disturbances begin their dominance.

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Paper provided by Reserve Bank of New Zealand in its series Reserve Bank of New Zealand Discussion Paper Series with number DP2013/04.

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Length: 43 p.
Date of creation: Jan 2013
Date of revision:
Handle: RePEc:nzb:nzbdps:2013/04

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Cited by:
  1. Anella Munro, 2014. "Exchange rates, expected returns and risk," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2014/01, Reserve Bank of New Zealand.
  2. Punnoose Jacob & Gert Peersman, 2013. "Dissecting the dynamics of the US trade balance in an estimated equilibrium model," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2013/04, Reserve Bank of New Zealand.
  3. Kollmann, Robert, 2012. "Global Banks, Financial Shocks and International Business Cycles: Evidence from an Estimated Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 8985, C.E.P.R. Discussion Papers.
  4. Punnoose Jacob, 2013. "Deep habits, price rigidities and the consumption response to Government spending," Reserve Bank of New Zealand Discussion Paper Series, Reserve Bank of New Zealand DP2013/03, Reserve Bank of New Zealand.
  5. Moons, Cindy, 2009. "An Estimated Two-Country DSGE Model: losses from UK membership in EMU," Working Papers, Hogeschool-Universiteit Brussel, Faculteit Economie en Management 2009/23, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  6. Robert Kollmann & Marco Ratto & Werner Roeger & Jan in’t Veld & Lukas Vogel, 2014. "What drives the German current account? And how does it affect other EU member states?," European Economy - Economic Papers, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission 516, Directorate General Economic and Monetary Affairs (DG ECFIN), European Commission.
  7. P. Jacob, 2010. "Disaggregating Real Exchange Rate Dynamics: A Structural Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium, Ghent University, Faculty of Economics and Business Administration 10/655, Ghent University, Faculty of Economics and Business Administration.
  8. Eickmeier, Sandra & Lemke, Wolfgang & Marcellino, Massimiliano, 2011. "The changing international transmission of financial shocks: evidence from a classical time-varying FAVAR," Discussion Paper Series 1: Economic Studies, Deutsche Bundesbank, Research Centre 2011,05, Deutsche Bundesbank, Research Centre.
  9. Dey, Jaya, 2013. "The role of investment-specific technology shocks in driving international business cycles: a bayesian approach," MPRA Paper 57803, University Library of Munich, Germany, revised 06 Aug 2014.
  10. Furlanetto, Francesco & Seneca, Martin, 2014. "Investment shocks and consumption," European Economic Review, Elsevier, Elsevier, vol. 66(C), pages 111-126.

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