Terms-of-Trade Shocks and Current-Account Fluctuations : The Case of a Eurozone Member Country[Chocs des thermes de l'échange et fluctuations du compte courant : Le Cas d'un pays membre de l'UEM]

This article offers a theoretical and empirical assessment of the characteristics of France's short- and medium-term external adjustments to temporary, unexpected terms-of-trade shocks. We base our theoretical analysis on an innovative synthesis of (1) the intertemporal approach to the current-account balance and (2) conventional trade-balance models. The analysis begins by identifying Marshall-Lerner conditions expanded to the intertemporal framework and to Economic and Monetary Union (EMU). We then assess the conditions using a robust estimate of the model's key parameters and inter- and intra-temporal elasticities of substitution. The simulations of the expanded Marshall-Lerner conditions indicate that the euro's introduction has dampened the impact of terms-of-trade shocks on the French current account. Moreover, intertemporal (or income) smoothing effects explain the dynamics of French external accounts better than substitution effects.