Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model

National Bank of Belgium Working Paper No. 226

47 Pages Posted: 13 Aug 2012

See all articles by Punnoose Jacob

Punnoose Jacob

Reserve Bank of New Zealand

Gert Peersman

Ghent University - Department of Financial Economics

Date Written: August 1, 2012

Abstract

In an estimated two-country DSGE model, we find that shocks to the marginal efficiency of investment account for more than half of the forecast variance of cyclical fluctuations in the US trade balance. Both domestic and foreign marginal efficiency shocks have a substantial impact on the variability of the imbalance. On the other hand, while traditional technology shocks can generate counter-cyclical trade balance dynamics, they matter very little for the overall forecast variance.

Keywords: Open Economy Macroeconomics, US Trade Balance, Investment Shocks, Bayesian Estimation of DSGE Models

JEL Classification: C11, F41

Suggested Citation

Jacob, Punnoose and Peersman, Gert, Dissecting the Dynamics of the US Trade Balance in an Estimated Equilibrium Model (August 1, 2012). National Bank of Belgium Working Paper No. 226, Available at SSRN: https://ssrn.com/abstract=2128548 or http://dx.doi.org/10.2139/ssrn.2128548

Punnoose Jacob (Contact Author)

Reserve Bank of New Zealand ( email )

2 The Terrace
PO Box 2498
Wellington, 6140
New Zealand

Gert Peersman

Ghent University - Department of Financial Economics ( email )

W. Wilsonplein 5D
Ghent, 9000
Belgium
+3292643514 (Phone)

HOME PAGE: www.feb.ugent.be/fineco/gert.html

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