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Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model

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  • P. JACOB
  • G. PEERSMAN

    ()

Abstract

This paper presents empirical evidence on the stochastic driving forces of the US trade balance. In an estimated two-country DSGE model, we .find that investment- specific technology shocks have the strongest impact on the volatility of cyclical trade balance .fluctuations, especially when the shocks are domestic and considered over longer forecast-horizons. At shorter horizons, US and foreign inter-temporal shocks that generate co-movement between consumption and investment, have an impact com- parable to that of the investment-specific technology shocks. In contrast, shocks to US public spending and neutral technology - both forces traditionally used to explain trade balance fluctuations - hardly explain the volatility.

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Bibliographic Info

Paper provided by Ghent University, Faculty of Economics and Business Administration in its series Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium with number 08/544.

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Length: 50 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:rug:rugwps:08/544

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Keywords: US Trade Balance; New Open Economy Macroeconomics; Bayesian Inference; DSGE Estimation;

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References

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Citations

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Cited by:
  1. Moons, Cindy, 2009. "An Estimated Two-Country DSGE Model: losses from UK membership in EMU," Working Papers 2009/23, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
  2. P. Jacob, 2010. "Disaggregating Real Exchange Rate Dynamics: A Structural Approach," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 10/655, Ghent University, Faculty of Economics and Business Administration.
  3. Eickmeier, Sandra & Lemke, Wolfgang & Marcellino, Massimiliano, 2011. "The Changing International Transmission of Financial Shocks: Evidence from a Classical Time-Varying FAVAR," CEPR Discussion Papers 8341, C.E.P.R. Discussion Papers.
  4. Robert Kollmann, 2012. "Global banks, financial shocks and international business cycles: evidence from an estimated model," Globalization and Monetary Policy Institute Working Paper 120, Federal Reserve Bank of Dallas.

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