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

October 1, 2003

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Benjamin L Hunt, and Alessandro Rebucci. The U.S. Dollar and the Trade Deficit: What Accounts for the Late 1990's?, (USA: International Monetary Fund, 2003) accessed November 7, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Exchange rates, Foreign exchange, International trade, National accounts, Production, Productivity, Real exchange rates, Return on investment, Trade balance

Keywords: Balassa-Samuelson Effect, East Asia, Effect of a productivity shock, Europe, Exchange rate, Exchange rates, Expenditure switching, Global, Learning, Nontradable goods, Persistence of the productivity shock, Productivity, Productivity acceleration, Productivity shock, Productivity Shocks, Real Exchange Rate, Real exchange rates, Response to a productivity increase, Return on investment, Risk premium, Risk premium shock, Risk Premium Shocks, Sector productivity shock, South Asia, Steady-state effect of a productivity shock, Trade Balance, Trade balance deterioration, Trade balance equilibrium, U.S. Economy, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2003/194
Stock No:

WPIEA1942003
ISBN:

9781451859881
ISSN:

1018-5941

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