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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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  • Jacob, Punnoose & Peersman, Gert, 2013. "Dissecting the dynamics of the US trade balance in an estimated equilibrium model," Journal of International Economics, Elsevier, vol. 90(2), pages 302-315.
    • Handle: RePEc:eee:inecon:v:90:y:2013:i:2:p:302-315
    DOI: 10.1016/j.jinteco.2013.01.004
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    More about this item

    Keywords

    Open economy macroeconomics; US trade balance; Investment shocks; Bayesian estimation of DSGE models;
    All these keywords.

    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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