International Trade and the Business Cycle

Eswar Prasad

No 1999/056, IMF Working Papers from International Monetary Fund

Abstract: This paper develops a new empirical framework for analyzing the dynamics of the trade balance in response to different types of macroeconomic shocks. The model provides a synthetic perspective on the conditional correlations between the business cycle and the trade balance that are generated by different shocks and attempts to reconcile these results with unconditional correlations found in the data. The results suggest that, in the post-Bretton Woods period, nominal shocks have been an important determinant of the forecast error variance for fluctuations in the trade balances of the Group of Seven countries.

Keywords: WP; supply and demand; Trade balance; business cycles; vector autoregressions; supply and demand demand shock; trade balance response; exchange rate fluctuation; ratio of the trade balance; response to a supply shock; trade variable; demand shocks to the forecast error variance; exchange rate depreciation; time series; Real exchange rates; Supply shocks; Exchange rates (search for similar items in EconPapers)
Pages: 25
Date: 1999-04-01
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Citations: View citations in EconPapers (54)

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Journal Article: International Trade and the Business Cycle (1999)
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