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

  • Punnoose Jacob

    ()

    (École Polytechnique Fédérale de Lausanne)

  • Gert Peersman

    ()

    (Ghent University)

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 have a substantial impact on the variability of the imbalance. On the other hand, while traditional technology shocks can generate counter-cyclical trade balance dynamics, they matter very little for the overall forecast variance.

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Paper provided by National Bank of Belgium in its series Working Paper Research with number 226.

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Length: 47 pages
Date of creation: Aug 2012
Handle: RePEc:nbb:reswpp:201208-226
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