Terms-of-Trade Shocks and Current-Account Fluctuations: The Case of a Eurozone Member Country

Chocs des termes de l'échange et fluctuations du compte courant: Le Cas d'un pays membre de l'UEM

Zoulfikar Mehoumoud Issop ()
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Zoulfikar Mehoumoud Issop: CEMOI - Centre d'Économie et de Management de l'Océan Indien - UR - Université de La Réunion

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Abstract: 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.

Date: 2007
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Published in Economie et Prévision, 2007, 4 (180-181), pp.201-219

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01618591

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