## A Quantitative Examination of Current Account Dynamics in Equilibrium Models of Barter Economies

_IMF Working Papers, February 1, 1992_

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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

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### 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.

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/a-quantitative-examination-of-current-account-dynamics-in-equilibrium-models-of-barter-764_