Trade Deficit (trade + deficit)

Distribution by Scientific Domains


Selected Abstracts


Expansionary Fiscal Shocks and the US Trade Deficit,

INTERNATIONAL FINANCE, Issue 3 2005
Christopher J. Erceg
In this paper, we use a dynamic general equilibrium model of an open economy to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labour income tax rate. Our salient finding is that a fiscal deficit has a relatively small effect on the US trade balance, irrespective of whether the source is a spending increase or tax cut. In our benchmark calibration, we find that a rise in the fiscal deficit of 1 percentage point of gross domestic product (GDP) induces the trade balance to deteriorate by 0.2 percentage point of GDP or less. Noticeably larger effects are only likely to be elicited under implausibly high values of the short-run trade price elasticity, or of the share of liquidity-constrained households in the economy. From a policy perspective, our analysis suggests that even reducing the current US fiscal deficit (of 3% of GDP) to zero would be unlikely to narrow the burgeoning US trade deficit significantly. [source]


The US Dollar and the Trade Deficit: What Accounts for the Late 1990s?,

INTERNATIONAL FINANCE, Issue 3 2005
Benjamin Hunt
Based on a version of the IMF's global economy model set up to analyse macroeconomic interdependence between the United States and the rest of the world, this paper asks to what extent accelerating productivity growth in the United States may have contributed to the US real exchange rate appreciation and the trade balance deterioration witnessed in the second half of the 1990s. The paper concludes that productivity is only part of this story. A portfolio preference shift in favour of US assets, possibly triggered by faster productivity growth, and some uncertainty and learning about the persistence of both shocks are needed to match the data more satisfactorily. [source]


GAUGING ECONOMIC PERFORMANCE UNDER CHANGING TERMS OF TRADE: REAL GROSS DOMESTIC INCOME OR REAL GROSS DOMESTIC PRODUCT?

ECONOMIC PAPERS: A JOURNAL OF APPLIED ECONOMICS AND POLICY, Issue 4 2008
Dr WILLIAM COLEMAN
The paper presents a simple theoretical case for the superiority of the notion of Real Gross Domestic Income to Gross Domestic Product. It is shown that, in a multi-period version of the familiar neoclassical model of a small, open economy, a temporary improvement in its terms of trade will increase welfare and RGDI, and produce a trade surplus in current prices; but will decrease real GDP, on account of it creating a trade deficit at constant prices. [source]


Expansionary Fiscal Shocks and the US Trade Deficit,

INTERNATIONAL FINANCE, Issue 3 2005
Christopher J. Erceg
In this paper, we use a dynamic general equilibrium model of an open economy to assess the quantitative effects of fiscal shocks on the trade balance in the United States. We examine the effects of two alternative fiscal shocks: a rise in government consumption, and a reduction in the labour income tax rate. Our salient finding is that a fiscal deficit has a relatively small effect on the US trade balance, irrespective of whether the source is a spending increase or tax cut. In our benchmark calibration, we find that a rise in the fiscal deficit of 1 percentage point of gross domestic product (GDP) induces the trade balance to deteriorate by 0.2 percentage point of GDP or less. Noticeably larger effects are only likely to be elicited under implausibly high values of the short-run trade price elasticity, or of the share of liquidity-constrained households in the economy. From a policy perspective, our analysis suggests that even reducing the current US fiscal deficit (of 3% of GDP) to zero would be unlikely to narrow the burgeoning US trade deficit significantly. [source]


The economic impact of subsidized industrial R&D in Israel

R & D MANAGEMENT, Issue 3 2002
Moshe Justman
Israel offers contingent subsidies to selected industrial R&D projects, with the purpose of creating high,quality jobs, reducing the trade deficit, increasing productivity and promoting growth. In 1987,94, 1,200 firms received $1,400 million of subsidies in support of $3,500 million of R&D (in constant 1996 dollars). We estimate that this R&D generated more than $31,000 million of sales, increasing industrial employment by about 10% and contributing to the trade balance a sum slightly less than the entire private sector deficit in the current account. It added 0.3% to GDP in increased productivity, each dollar of supported R&D adding an additional $0.45 to GDP and earning the economy a direct annual return of 13.4%. Electronics, broadly defined, received roughly half the subsidies while accounting for nearly two thirds of the gains; small firms that received one sixth of the subsidies contributed over a quarter of the gains. [source]


THE EVOLUTION OF INFLATION AND UNEMPLOYMENT: EXPLAINING THE ROARING NINETIES

AUSTRALIAN ECONOMIC PAPERS, Issue 4 2008
MARIKA KARANASSOU
This paper analyses the relation between US inflation and unemployment from the perspective of ,frictional growth,' a phenomenon arising from the interplay between growth and frictions. In particular, we focus on the interaction between money growth and nominal frictions. In this context we show that monetary policy has not only persistent, but permanent real effects, giving rise to a long-run inflation-unemployment tradeoff. We evaluate this tradeoff empirically and assess the impact of productivity, money growth, budget deficit, and trade deficit on the US unemployment and inflation trajectories during the nineties. [source]


The impact of the Asian Crisis on Australia's primary exports: why it wasn't so bad

AUSTRALIAN JOURNAL OF AGRICULTURAL & RESOURCE ECONOMICS, Issue 3 2000
Ron Duncan
This article explores the modest impact of the Asian Crisis on Australia's primary commodity exports. Simulations using a global general equilibrium model show: (i) as capital flees Asia, investment in Australia increases and the trade deficit grows; (ii) while terms of trade deteriorate in the short run, they improve in the medium run as import demand increases in the crisis countries; (iii) exports of primary commodities expand as the crisis countries try to export more; (iv) more income-elastic primary commodities fare less well than the income-inelastic foodstuffs as incomes decline in the crisis countries; (v) Australia's relatively low dependence on manufactured exports was a buffer as manufactured exports came under heavy pressure from exports from the crisis countries. [source]


China's Economic Prospects and Sino,US Economic Relations

CHINA AND WORLD ECONOMY, Issue 2 2006
Pingfan Hong
F00; P21 Abstract A better comprehension of the mixed sentiment in the rest of world towards the rapid rise of the Chinese economy will depend on the understanding of some key features of the Chinese economy, such as those associated with its size, structure and institution. To further sustain its high growth, China is facing more challenges than it has encountered in the past 2 decades, including a gamut of material constraints. Although polices and technological progress might alleviate many of these constraints, the ultimate solution will still lie in continued institutional reform. China's recent move towards a more flexible exchange rate regime is in line with its broad reform and in accordance with the progress of its development. However, such a move will have limited immediate effects on the prodigious US trade deficit, which itself is a problem rooted in the flawed international reserve system, far beyond a Sino-US trade issue. Edited by Xiaoming Feng [source]


TWIN SONS OF DIFFERENT MOTHERS: THE LONG AND THE SHORT OF THE TWIN DEFICITS DEBATE

ECONOMIC INQUIRY, Issue 4 2009
KEVIN GRIER
Interest in the twin deficits hypothesis fluctuates in tandem with the U.S. current account deficit. Surprisingly though, a statistically robust relationship between budget and trade deficits has been difficult to pin down. We argue that a big part of this difficulty is due to the failure to allow for structural breaks in the series when (either explicitly or implicitly) modeling their time series properties. We show that both series are break stationary (and conditionally heteroskedastic) and argue that while there is no common pattern in the long run, the short-run dynamics reveal a sizeable and fairly persistent positive relationship between budget deficit shocks and current account deficit shocks. (JEL F41, E6, H6) [source]


Putting aid in its place: Insights from early structuralists on aid and balance of payments and lessons for contemporary aid debates,

JOURNAL OF INTERNATIONAL DEVELOPMENT, Issue 6 2009
Andrew M. Fischer
Abstract Recent debates on aid and development are waged on narrow terms in comparison to earlier debates in the 1950s and 1960s. The principal concern of the ,structuralist' pioneers of development economics, and the key absence in the current debates, was an understanding of the structural impediments faced by countries going through late industrialisation and rapid urban growth. These result in chronic trade deficits, shortages of foreign exchange and persistent balance of payments disequilibria. The positive potential of aid was understood to lie in its ability to mediate these imbalances in the context of national industrialisation strategies. By the same logic, this potential is lost if countries run trade surpluses. Current debates on aid mostly overlook this dual logic, despite the fact that both positive and negative experiences of post-war development largely vindicate these structuralist insights, particularly in light of current global financial imbalances. Copyright 2009 John Wiley & Sons, Ltd. [source]


Capital Flows, Consumption Booms and Asset Bubbles: A Behavioural Alternative to the Savings Glut Hypothesis,

THE ECONOMIC JOURNAL, Issue 544 2010
David Laibson
Bernanke (2005) hypothesised that a ,global savings glut' was causing large trade imbalances. However, we show that the global savings rates did not show a robust upward trend during the relevant period. Moreover, if there had been a global savings glut there should have been a large investment boom in the countries that imported capital. Instead, those countries experienced consumption booms. National asset bubbles explain the international imbalances. The bubbles raised consumption, resulting in large trade deficits. In a sample of 18 OECD countries plus China, movements in home prices alone explain half of the variation in trade deficits. [source]


Beyond MIRAB: Do aid and remittances crowd out export growth in Pacific microeconomies?

ASIA PACIFIC VIEWPOINT, Issue 1 2006
Jon Fraenkel
Abstract: The 1980s investigations of post-colonial Polynesian and Micronesian economies emphasised the role of aid, remittances and other rent incomes as ,booming sectors' which ,crowded out' export-driven growth. Contrary to orthodox theory-based models at that time being embraced by the World Bank and International Monetary Fund (emphasising liberalisation and primary product export-oriented economic growth), Bertram and Watters instead highlighted long-run trade deficits and onshore government budget deficits, driven by reliance on overseas migration, remittances, aid and bureaucracy (MIRAB). ,Dependent development' was identified as ,both sustainable and preferable to a drive for self reliance', with the logical corollary that the objectives of the Pacific Islands should be ,the preservation and enhancement of their status as rentier societies'. Yet, this perspective has never sat easily with development-oriented Polynesian or Micronesian political leaders. Despite useful empirical insights, the MIRAB perspective informs a rather complacent and static view of Oceania as caught in some kind of ,steady state' equilibrium, and downplays the role of weak governance structures in inhibiting export production. This article argues that the strengths of the MIRAB thesis are primarily descriptive, whereas the analytical claims to have exposed what determines the evolution of the island economies merit reconsideration. [source]