Trade Deficits in the Baltic States: How Long Will the Party Last?

Rudolfs Bems and Kristian Jönsson ()
Additional contact information
Kristian Jönsson: Research Department, Central Bank of Sweden, Postal: Sveriges Riksbank, SE-103 37 Stockholm, Sweden

No 186, Working Paper Series from Sveriges Riksbank (Central Bank of Sweden)

Abstract: Since their opening up to international capital markets, the economies of Estonia, Latvia and Lithuania have experienced large and persistent capital inflows and trade deficits. This paper investigates whether a calibrated two-sector neoclassical growth model can explain the magnitudes and the timing of the trade flows in the Baltic countries. The model is calibrated for each of the three countries, which we simulate as small closed economies that suddenly open up to international trade and capital flows. The results show that the model can account for the observed magnitudes of the trade deficits in the 1995-2001 period. Introducing a real interest rate risk premium in the model increases its explanatory power. The model indicates that trade balances will turn positive in the Baltic states around 2010.

Keywords: Baltic states; international factor movements; non-traded goods; adjustment costs; dynamic general equilibrium (search for similar items in EconPapers)
JEL-codes: C68 F41 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2005-06-01
New Economics Papers: this item is included in nep-cmp and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in Review of Economic Dynamics, 2006, pages 179-209.

Downloads: (external link)
http://www.riksbank.com/upload/Dokument_riksbank/Kat_foa/WP_186.pdf (application/pdf)

Related works:
Journal Article: Trade Deficits in the Baltic States: How Long Will the Party Last? (2006)
Working Paper: Trade Deficits in the Baltic States: How Long Will the Party Last? (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hhs:rbnkwp:0186

Access Statistics for this paper

More papers in Working Paper Series from Sveriges Riksbank (Central Bank of Sweden) Sveriges Riksbank, SE-103 37 Stockholm, Sweden. Contact information at EDIRC.
Bibliographic data for series maintained by Lena Löfgren ().