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Domestic Versus Foreign Drivers Of Trade (Im)Balances: How Robust Is Evidence From Estimated DSGE Models

Author

Listed:
  • Roberta Cardani

    (European Commission, Joint Research Centre (JRC), Ispra, Italy)

  • Stefan Hohberger

    (European Commission, Joint Research Centre (JRC), Ispra, Italy)

  • Philipp Pfeiffer

    (European Commission, Directorate General for Economic and Financial Affairs, Brussels, Belgium)

  • Lukas Vogel

    (IRES, UCLouvain and European Commission, Directorate General for Economic and Financial Affairs, Brussels, Belgium)

Abstract

Estimated DSGE models tend to ascribe a significant and often predominant part of a country's trade balance (TB) dynamics to domestic drivers ("shocks"), suggesting foreign factors to be only of secondary importance. This paper revisits the result based on more agnostic approaches to shock transmission and using "agnostic structural disturbances". We estimate multi-region models for Germany and Spain as countries with very distinct TB patterns since 1999. Results suggest that domestic drivers remain dominant when theory-based restrictions on shock transmission are relaxed, although the transmission of foreign shocks is strengthened.

Suggested Citation

  • Roberta Cardani & Stefan Hohberger & Philipp Pfeiffer & Lukas Vogel, 2020. "Domestic Versus Foreign Drivers Of Trade (Im)Balances: How Robust Is Evidence From Estimated DSGE Models," LIDAM Discussion Papers IRES 2020025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2020025
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    More about this item

    Keywords

    Agnostic structural disturbances; open economy DSGE model; trade balance; Germany; Spain;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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