Euro Area and US external adjustment: The role of commodity prices and Emerging Market shocks

The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999–2017) three-region (US, EA, rest of world) DSGE model with trade in...

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Bibliographic Details
Published inJournal of international money and finance Vol. 94; pp. 183 - 205
Main Authors Giovannini, Massimo, Hohberger, Stefan, Kollmann, Robert, Ratto, Marco, Roeger, Werner, Vogel, Lukas
Format Journal Article
LanguageEnglish
Published Elsevier Ltd 01.06.2019
Elsevier
Subjects
Commodity markets
EA and US external adjustment
Emerging Markets
Humanities and Social Sciences
Commodity markets
EA and US external adjustment
F2
F3
F4
Emerging Markets
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Summary:The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999–2017) three-region (US, EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and US trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and US trade balances. The broader lesson of this paper is that Emerging Markets and commodity shocks are major drivers of advanced countries’ trade balances and terms of trade.
ISSN:0261-5606
1873-0639
DOI:10.1016/j.jimonfin.2019.01.014