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

Punnoose Jacob and Gert Peersman ()

Journal of International Economics, 2013, vol. 90, issue 2, 302-315

Abstract: 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 generate a strong effect on the variability of the imbalance, through shifts in international relative absorption. On the other hand, shocks to uncovered interest parity and foreign export prices, which transmit mainly via the terms of trade and exchange rate, have a strong influence at short forecast-horizons, before the investment disturbances begin their dominance.

Keywords: Open economy macroeconomics; US trade balance; Investment shocks; Bayesian estimation of DSGE models (search for similar items in EconPapers)
JEL-codes: C11 F41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (42)

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Related works:
Working Paper: Dissecting the dynamics of the US trade balance in an estimated equilibrium model (2013)
Working Paper: Dissecting the dynamics of the US trade balance in an estimated equilibrium model (2012)
Working Paper: Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:90:y:2013:i:2:p:302-315

DOI: 10.1016/j.jinteco.2013.01.004

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