The U.S. Dollar and the Trade Deficit: What Accounts for the Late 1990s?

42 Pages Posted: 6 Feb 2006

See all articles by Ben Hunt

Ben Hunt

International Monetary Fund (IMF) - Research Department

Alessandro Rebucci

Johns Hopkins University - Carey Business School; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Date Written: October 2003

Abstract

Based on a version of the IMF's new Global Economic Model (GEM), calibrated to analyze macroeconomic interdependence between the United States and the rest of the world, this paper asks to what extent an asymmetric productivity shock in the tradable sector of the economy may account for real exchange rate and trade balance developments in the United States in the second half of the 1990s. The paper concludes that the Balassa-Samuelson effect of such a productivity shock is only part of the story. A second shock, a broadly defined risk premium shock, and some uncertainty about the persistence of both shocks are needed to match the data more satisfactorily.

Keywords: Balassa-Samuelson Effect, Learning, Productivity Shocks, Real Exchange Rate, Risk Premium Shocks, Trade Balance, U.S. Economy

JEL Classification: F43, F47, O41

Suggested Citation

Hunt, Benjamin and Rebucci, Alessandro, The U.S. Dollar and the Trade Deficit: What Accounts for the Late 1990s? (October 2003). IMF Working Paper No. 03/194, Available at SSRN: https://ssrn.com/abstract=880312

Benjamin Hunt (Contact Author)

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Alessandro Rebucci

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

HOME PAGE: http://carey.jhu.edu/faculty-research/faculty-directory/alessandro-rebucci-phd

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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