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

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  • Jacob, Punnoose
  • Peersman, Gert

Abstract

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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Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 90 (2013)
Issue (Month): 2 ()
Pages: 302-315

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Handle: RePEc:eee:inecon:v:90:y:2013:i:2:p:302-315
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505552

Keywords: Open economy macroeconomics; US trade balance; Investment shocks; Bayesian estimation of DSGE models;

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Find related papers by JEL classification:
  • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
  • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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