Working Paper: CEPR ID: DP13141
Authors: Massimo Giovannini; Stefan Hohberger; Robert Kollmann; Marco Ratto; Werner Roeger; Lukas Vogel
Abstract: The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (US, EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and US trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and US trade balances. The broader lesson of this paper is that Emerging Markets and commodity shocks are major drivers of advanced countries’ trade balances and terms of trade.
Keywords: EA and US external adjustment; commodity markets; emerging markets
JEL Codes: F2; F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Commodity prices (Q02) | Trade balances (F14) |
| Lower commodity prices (Q02) | Improved trade balance (F19) |
| Aggregate demand shocks from emerging markets (F41) | Trade balances (F14) |
| Domestic aggregate demand shocks (E00) | Trade balances (F14) |
| Commodity-specific demand shocks (Q02) | US trade deficit (F19) |
| Negative shocks to commodity import demand (F69) | EA trade balance improvement (F14) |