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Demand Shocks and Trade Balance Dynamics

Author

Listed:
  • José García-Solanes

    () (Departamento de Fundamentos del Análisis Económico, Universidad de Murcia)

  • Jesús Rodríguez López

    () (Department of Economics, Universidad Pablo de Olavide)

  • José Luis Torres Chacón

    () (Departamento de Teoría e Historia Económica, Universidad de Málaga)

Abstract

This paper studies the current account dynamics in the G-7 countries plus Spain. We estimate a SVAR model which allows us to identify three different shocks: supply shocks, real demand shocks and nominal shocks. We use a different identification procedure from previous work based on a microfounded stochastic open-economy model in which the real exchange rate is a determinant of the Phillips curve. Estimates from a structural VAR show that real demand shocks explain most of the variability of current account imbalances, whereas, contrary to previous findings, nominal shocks play no role. The results we obtain are consistent with the predictions of a widely set of open-economy models and illustrate that demand policies are the main responsible of trade imbalances.

Suggested Citation

  • José García-Solanes & Jesús Rodríguez López & José Luis Torres Chacón, 2007. "Demand Shocks and Trade Balance Dynamics," Working Papers 07.10, Universidad Pablo de Olavide, Department of Economics.
    • Handle: RePEc:pab:wpaper:07.10
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    References listed on IDEAS

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    Cited by:

    1. Stephen Nicar, 2015. "International Spillovers from U.S. Fiscal Policy Shocks," Open Economies Review, Springer, vol. 26(5), pages 1081-1097, November.
    2. Nikolaychuk Sergiy & Shapovalenko Nadiia, 2013. "The identification of the sources of current account fluctuations in Ukraine," EERC Working Paper Series 13/12e, EERC Research Network, Russia and CIS.

    More about this item

    Keywords

    Current account; SVAR.;

    JEL classification:

    • F3 - International Economics - - International Finance

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