Dynamics of the Trade Balance and the Terms of Trade: the S-Curve

47 Pages Posted: 27 Feb 2004 Last revised: 13 Aug 2010

See all articles by David K. Backus

David K. Backus

NYU Stern School of Business; National Bureau of Economic Research (NBER)

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department; University of Minnesota - Twin Cities - Department of Economics; National Bureau of Economic Research (NBER)

Finn Kydland

Carnegie Mellon University - David A. Tepper School of Business; Norwegian School of Economics (NHH) - Department of Economics

Date Written: December 1992

Abstract

We provide a theoretical interpretation of two features of international data: the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in the terms of trade, but positively correlated with past movements. We document these same properties in a two-country stochastic growth model in which trade fluctuations reflect, in large part, the dynamics of capital formation. We find that the general equilibrium perspective is essential: The relation between the trade balance and the terms of trade depends critically on the source of fluctuations.

Suggested Citation

Backus, David K. and Kehoe, Patrick J. and Kydland, Finn E., Dynamics of the Trade Balance and the Terms of Trade: the S-Curve (December 1992). NBER Working Paper No. w4242. Available at SSRN: https://ssrn.com/abstract=510105

David K. Backus (Contact Author)

NYU Stern School of Business

44 West Fourth Street
New York, NY 10012
United States
212-998-0873 (Phone)
212-995-4220 (Fax)

HOME PAGE: http://pages.stern.nyu.edu/~dbackus/

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://pages.stern.nyu.edu/~dbackus/

Patrick J. Kehoe

Federal Reserve Bank of Minneapolis - Research Department ( email )

90 Hennepin Avenue
Minneapolis, MN 55480
United States
612-204-5525 (Phone)
612-204-5515 (Fax)

University of Minnesota - Twin Cities - Department of Economics ( email )

271 19th Avenue South
Minneapolis, MN 55455
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Finn E. Kydland

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412 268-3691 (Phone)
412 268-7357 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Register to save articles to
your library

Register

Paper statistics

Downloads
68
rank
328,812
Abstract Views
1,098
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information