Demand Shocks and Trade Balance Dynamics

This paper studies the trade balance dynamics in the G-7 countries plus Spain. We estimate a SVAR model to identify three different shocks: real supply shocks, real demand disturbances and nominal shocks. A microfounded stochastic open-economy model is built to derive the long-term identification re...

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Published inOpen economies review Vol. 22; no. 4; pp. 739 - 766
Main Authors García-Solanes, José, Rodríguez-López, Jesús, Torres, José Luis
Format Journal Article
LanguageEnglish
Published Boston Springer US 01.09.2011
Springer Nature B.V
Subjects
Balance of trade
Budget deficits
Comparative analysis
Cross-national analysis
Demand shock
Development Economics
Dynamics
Economic models
Economic Policy
Economic theory
Economics
Economics and Finance
Estimation
European Integration
Foreign exchange rates
Identification
International Economics
International finance
International trade
Macroeconomics/Monetary Economics//Financial Economics
Manycountries
Phillips curve
Productivity
Research Article
Restrictions
Stochastic processes
Studies
Variables
Vector-autoregressive models
Spain
F3
SVAR
Trade balance
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Summary:This paper studies the trade balance dynamics in the G-7 countries plus Spain. We estimate a SVAR model to identify three different shocks: real supply shocks, real demand disturbances and nominal shocks. A microfounded stochastic open-economy model is built to derive the long-term identification restrictions. Estimates show that real demand shocks explain most of the variability of trade imbalances, whereas, contrary to previous findings, nominal shocks play a very limited role. These results 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.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0923-7992
1573-708X
DOI:10.1007/s11079-010-9171-3