Demand Shocks and Trade Balance Dynamics

José García-Solanes (solanes@um.es), Jesús Rodríguez López (jrodlop@upo.es) and Jose Torres (jtorres@uma.es)
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Jesús Rodríguez López: Department of Economics, Universidad Pablo de Olavide
Authors registered in the RePEc Author Service: Jesús Rodríguez-López (jrodlop@upo.es)

No 07.10, Working Papers from Universidad Pablo de Olavide, Department of Economics

Abstract: This paper studies the current account dynamics in the G-7 countries plus Spain. We estimate a SVAR model which allows us to identify three different shocks: supply shocks, real demand shocks and nominal shocks. We use a different identification procedure from previous work based on a microfounded stochastic open-economy model in which the real exchange rate is a determinant of the Phillips curve. Estimates from a structural VAR show that real demand shocks explain most of the variability of current account imbalances, whereas, contrary to previous findings, nominal shocks play no role. The results we obtain are consistent with the predictions of a widely set of open-economy models and illustrate that demand policies are the main responsible of trade imbalances.

Keywords: Current account; SVAR. (search for similar items in EconPapers)
JEL-codes: F3 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2007-05
New Economics Papers: this item is included in nep-cba and nep-int
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http://www.upo.es/serv/bib/wps/econ0710.pdf First version, 2007 (application/pdf)

Related works:
Journal Article: Demand Shocks and Trade Balance Dynamics (2011)
Working Paper: Demand shocks and trade balance dynamics (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:pab:wpaper:07.10

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