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Investigating Global Imbalances: Empirical Evidence from a GVAR Approach

Listed author(s):
  • Timo Bettendorf

    ()

This paper investigates the development of external imbalances from an international perspective by estimating a Global VAR model for the period 1981Q1-2009Q4 with a setup close to that of an international real business cycle model. The model considers 28 countries of which 10 are aggregated as the Eurozone. We compute generalized impulse response functions, as well as generalized forecast error variance decompositions, in order to measure the effects of shocks on international trade balances. The United States, Eurozone and China are considered as the sources of those shocks. We account for imbalances using real GDP, real effective exchange rates (REER) and real interest rates (RIR) as well as the oil price. Overall, we find evidence for the joint dynamics of our variables as drivers of the imbalances and relate our findings to theories of Global Imbalances. We show that real GDP is a relatively unimportant variable compared to the REER, RIR and the oil price. Moreover, we provide a counterfactual analysis of the US trade balance.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/1217.pdf
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Paper provided by School of Economics, University of Kent in its series Studies in Economics with number 1217.

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Date of creation: Dec 2012
Handle: RePEc:ukc:ukcedp:1217
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School of Economics, University of Kent, Canterbury, Kent, CT2 7NP

Phone: +44 (0)1227 827497
Web page: http://www.kent.ac.uk/economics/

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