The Dynamics of Trade Balance and Terms of Trade: 'S' Curve in Europe?
42 Pages Posted: 29 Apr 2002
We document the main cyclical features of the trade balance and the terms of trade in European Union as a whole and in the four "Cohesion Countries", in particular. S-curve describes also well the dynamic effect of terms of trade on the trade balance in these set of countries. We use the Backus, Kehoe and Kydland (1994) model to replicate the empirical data. We show that only one variable in the model is robust to cross-country differences: the trade balance.
Keywords: Real Business Cycles, Trade Balance, Terms of Trade, S-curve
JEL Classification: E32, E37
Suggested Citation: Suggested Citation