Trade balance and terms of trade in U.S.: a time-scale decomposition analysis
AbstractThe aim of this paper is to provide evidence on the nature of the relationship between the terms of trade and the trade balance for US on a scale-by-scale basis using wavelet analysis. Thus, after decomposing the two variables into their time-scale components using to the maximum overlap discrete wavelet transform (MODWT) we analyze the time scale relationships between the terms of trade and the trade balance through the wavelet correlation analysis, and nonparametric regression models(GAMs). Wavelet correlation analysis indicates that, if the association between the trade balance and the terms of trade depends mainly on the elasticity of substitution between foreign and domestic goods, the Armington elasticities may be di¤erent across scales, and in particular, tend to get larger as the time horizon of the agents increases. Moreover, the long-run relationship between the trade balance and the terms of trade from the nonparametric …tted functions seems to provide support to the existence of the Harberger-Laursen-Metzler e¤ect .
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Bibliographic InfoPaper provided by EconWPA in its series International Trade with number 0512016.
Length: 15 pages
Date of creation: 27 Dec 2005
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trade variables; wavelet correlation analysis; generalized additive models;
Find related papers by JEL classification:
- C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
- E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
- F10 - International Economics - - Trade - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-01-24 (All new papers)
- NEP-INT-2006-01-24 (International Trade)
- NEP-MAC-2006-01-24 (Macroeconomics)
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