Structural Change in the External Balances Response to Macroeconomic Policies: Perspective from a Two-Sector New Open Economy Macroeconomic Model

The response of the Japanese trade balance against expansionary macroeconomic policy shocks changed from positive to negative in the 1990s. With consideration of intratemporal (between tradable and nontradable goods) and intertemporal elasticity of substitutions, we investigate this cause using two‐...

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Bibliographic Details
Published inReview of international economics Vol. 21; no. 5; pp. 1021 - 1031
Main Author Yamamoto, Shugo
Format Journal Article
LanguageEnglish
Published Oxford Blackwell Publishing Ltd 01.11.2013
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Summary:The response of the Japanese trade balance against expansionary macroeconomic policy shocks changed from positive to negative in the 1990s. With consideration of intratemporal (between tradable and nontradable goods) and intertemporal elasticity of substitutions, we investigate this cause using two‐sector new open economy macroeconomics (NOEM). Empirical methods, considering structural change, were applied and show that before the break, intratemporal elasticity of substitution dominates, but subsequently the relation inverted and intertemporal elasticity became predominant and hence, the theoretical response of trade balance changed. Finally, we verify this theoretical implication empirically by impulse response analysis of structural vector auto regression.
Bibliography:ark:/67375/WNG-64D71FH5-J
ArticleID:ROIE12087
istex:30F5F13063F390A366CF70AEEFE949B1F48063CE
Grant-in-Aid for Scientific Research in "Global Imbalance: Policy Response and Early Warning System" - No. 23330106
ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0965-7576
1467-9396
DOI:10.1111/roie.12087