Dynamics of the trade balance and the terms of trade: the J-curve?

D. K. Backus, P. J. Kehoe, F. E. Kydland

Research output: Contribution to journalArticle

424 Scopus citations

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 the 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 our general-equilibrium perspective is essential: the relation between the trade balance and the terms of trade depends critically on the source of fluctuations. -Authors

Original languageEnglish (US)
Pages (from-to)84-103
Number of pages20
JournalAmerican Economic Review
Volume84
Issue number1
StatePublished - Jan 1 1994

Fingerprint Dive into the research topics of 'Dynamics of the trade balance and the terms of trade: the J-curve?'. Together they form a unique fingerprint.

  • Cite this