Trend Shocks and the Countercyclical U.S. Current Account
Eylem Ersal Kiziler
University of Wisconsin - Whitewater
From 1960-2009, the U.S. current account balance has tended to decline during expansions and improve in recessions. We argue that trend shocks to productivity can help explain the countercyclical U.S. current account. Our framework is a two-country, two-good real business cycle (RBC) model in which cross-border asset trade is limited to an international bond. We identify trend and transitory shocks to U.S. productivity using generalized method of moments (GMM) estimation. The specification that best matches the data assigns a large role to trend shocks. The estimated model generates a countercyclical current account without excessive consumption volatility.
Number of Pages in PDF File: 28
Keywords: current account, trend shocks, business cycles, open economy macroeconomics, DSGE models, GMM estimation
JEL Classification: E21, E32, F32, F41working papers series
Date posted: July 19, 2012
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