A Quantitative Examination of Current Account Dynamics in Equilibrium Models of Barter Economies
IMF Working Papers, February 1, 1992
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- A Quantitative Examination of Current Account Dynamics in Equilibrium Models of Barter Economies
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Bibliographic details
- Authors: Enrique G. Mendoza
- Published: February 1, 1992
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451924121.001
Summary of the paper
- Provides a numerical analysis of an intertemporal equilibrium model of a small open, barter economy subject to random shocks affecting endowments, the terms of trade, and the real interest rate.
- Computes equilibrium stochastic processes for macroeconomic aggregates and compares their properties with observed stylized facts.
- The model mimics the Harberger-Laursen-Metzler effect but cannot account for:
- a countercyclical trade balance,
- the variability of the real exchange rate,
- the income elasticity of imports.
- Shows that, under incomplete insurance markets, the correlation between the trade balance and the terms of trade is sensitive to:
- changes in preference parameters,
- changes in the persistence of exogenous shocks.
Key findings and empirical comparisons
- The model reproduces the Harberger-Laursen-Metzler effect.
- The model fails to replicate three observed stylized facts:
- countercyclical trade balance,
- variability of the real exchange rate,
- income elasticity of imports.
- The correlation between the trade balance and the terms of trade is not robust; it varies with preference parameters and shock persistence when insurance markets are incomplete.
Model scope and shocks analyzed
- Economy type: small open, barter economy.
- Exogenous stochastic disturbances considered:
- endowment shocks,
- terms-of-trade shocks,
- real interest rate shocks.
- Equilibrium objects computed: stochastic processes for macroeconomic aggregates.
Subjects and keywords (as listed)
- Subjects: Consumption, Financial markets, Imports, International trade, National accounts, Securities markets, Terms of trade, Trade balance.
- Keywords: balance of trade, Consumption, countercyclical trade balance, cross-expenditure effect, detrended trade balance, Imports, real interest rate, Securities markets, standard deviation, Terms of trade, terms-of-trade disturbance, terms-of-trade shock, Trade balance, trade-balance behavior, WP.