Working Paper: CEPR ID: DP379
Authors: Michael C. Burda; Stefan Gerlach
Abstract: This paper shows that virtually all of the rapid worsening of the US trade deficit since 1982 can be attributed to the balance on durable goods. Moreover, this deterioration has been concentrated in capital goods rather than consumer durables intertemporal prices play a key role in the behaviouring or automobiles. In the context of a simple model, we show that the trade balance in durables (but not in nondurables) durables is the role of intertemporal prices in the latter. This result suggests that the deficit on durables may be due to a reduction of their intertemporal prices associated with, among other things, the temporary appreciation of the dollar in the early 1980s. The key role of intertemporal prices is confirmed by our econometric findings.
Keywords: durable goods; trade balance; intertemporal prices
JEL Codes: 431; 441
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| intertemporal price of durable goods (D15) | real durable imports (L68) |
| intertemporal price of durable goods (D15) | trade balance in durable goods (F19) |
| intertemporal price of durable goods (D15) | worsening of US trade deficit (F69) |
| reduction in intertemporal prices (D15) | trade balance in durable goods (F19) |
| intertemporal prices (P22) | real durable imports and trade balance in durable goods (F14) |