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Mr. Tihomir P Stucka
A reduced-form model approach was used to estimate the trade balance response to permanent domestic currency depreciation. For this purpose, long-run and short-run effects were estimated, using three modeling methods along with two real effective exchange rate measures. On average, a 1 percent permanent depreciation improves the equilibrium trade balance by between 0.94 percent and 1.3 percent. The new equilibrium is established after approximately 2.5 years. Evidence of the J-curve is also found. Overall, in the light of the results obtained, it is questionable whether permanent depreciation is desirable to improve the trade balance, taking into account potential adverse effects on the rest of the economy.
Mr. Alberto Behar and Mr. Armand Fouejieu

Elasticities of Trade Volumes 3. Current Account Balance Regressions 4. Trade Balance Regressions 5. Current Account and Trade Balance Responses to Nominal Effective Exchange Rate 6. Non-Oil Current Account Response to Non-oil Fiscal Balance and Exchange Appendix Tables 1. Sample 2. Variables Description and Source 3. Correlation Table 4: Current Account Regressions – Including all the EBA-Lite Regressors 5. Current Account Regressions – GCC Countries 6. Trade Balance Regressions – GCC Countries

Mr. Alberto Behar, Mr. Armand Fouejieu, and Mr. Tim Callen

-level series, where responses are typically lower than those using data that is disaggregated at the product/sector level ( Orcutt, 1950 ; Auer and Sauré, 2012 ; Imbs and Mejean, 2015 ). Moreover, there is some evidence of a non-linear response such that elasticities are higher in episodes of large depreciations (Lee and others, 2015). For oil exporters, the volume elasticities discussed above make it less likely that the Marshal Lerner conditions hold (in which case the trade balance semi-elasticity would be positive) or at least make the trade balance response low (the

International Monetary Fund

: International Monetary Fund; WEO database; and IMF staff estimates. 1/ Average of annual percentage changes of actual and predicted volumes and values (US dollars) for Argentina, Brazil, Ecuador, Indonesia, Korea, Malaysia, Mexico, Philippines, Thailand, Turkey, and Uruguay. 2/ t refers to the first year of the capital account crisis. D. Trade Balance 35. The trade balance response to a nominal exchange rate depreciation differs across the three country types—oil, non-oil commodities, and manufactures exporters—and may also differ within each category

Gustavo Adler, Ms. Carolina Osorio Buitron, Mr. Helge Berger, and Mr. Luis M. Cubeddu

Baseline NEER unrest. Risk appetite shocks REER rest. 3/ 10 yr-yield rest. 3/ (1) (2) (3) (4) (5) Trade Balance Response to Policy Shocks Monetary shocks 1/ On Impact −0.11 −0.11 −0.06 −0.11 −0.11 After 12 months −0.06 −0.06 −0.03 −0.06 −0.06 Fiscal shocks 2/ On Impact 0.13 0.13 0.02 0.15 0.13 After 12 months 0.18 0.18 0.06 0.22 0.18 Policy Shocks Contribution to Post-GFC Trade Balance

Mr. Michael W Klein and Mr. Tamim Bayoumi
This paper develops a method of testing levels of economic integration based upon consumption smoothing, and tests it using data on trade balances across Canadian provinces. The results indicate the provinces are highly integrated within Canada, but integration between Canada and the rest of the world is partial. Provincial trade balances respond only about half as much to events in the rest of the world as they do to events within Canada. In short, national borders appear to matter for intertemporal trade.
Tihomir Stučka

measures are employed to obtain more robust results. This is undertaken bearing in mind that Croatia is a transition country with only short time series available and a dynamic trading environment characterized by many outliers. The estimated response of the trade balance to depreciation embodies a weighted average result. This is due to the foreign income variable aggregated across six major trading partners and the fluctuations that are averaged out in the real effective exchange rate. In other words, the trade balance response incorporates the asymmetric response of

Ms. Adina Popescu and Mr. Ippei Shibata
This note analyzes the impact of preannounced government spending shocks in the United States on the real effective exchange rate and the trade balance. Using a vector autoregression framework that allows anticipated fiscal shocks to be identified using survey information, we find that preannounced spending shocks lead to a sizable real effective dollar appreciation and a worsening of both the aggregate trade balance and bilateral trade balances in a panel of partner countries. The results are robust to controlling for country-specific variables like the macroeconomic and policy conditions in the recipient countries, are generalized across regions and might have decreased during the zero-interest-lower-bound regime.
Mr. Eswar S Prasad
This paper develops a new empirical framework for analyzing the dynamics of the trade balance in response to different types of macroeconomic shocks. The model provides a synthetic perspective on the conditional correlations between the business cycle and the trade balance that are generated by different shocks and attempts to reconcile these results with unconditional correlations found in the data. The results suggest that, in the post-Bretton Woods period, nominal shocks have been an important determinant of the forecast error variance for fluctuations in the trade balances of the Group of Seven countries.
Ms. Adina Popescu and Mr. Ippei Shibata

crisis, as the constrained monetary policy at the zero lower bound may have dampened exchange rate appreciation (in response to expansionary fiscal shocks), potentially contributing to a weaker trade balance response. The rest of the note is organized as follows. The next section presents a brief theoretical and empirical literature review. The third section explains the methodological approach behind our identification of the fiscal shocks. It then presents the results from a VAR estimated on US data only and subsequently from a panel VAR on a sample of advanced