Income effects on the trade balance in small open economies

Dragan Miljkovic, Rodney J. Paul, Roberto J. Garcia

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

The objective is to determine the causes of the countercyclicality of the trade balance in five small open economies, namely Austria, France, Italy, Spain, and Switzerland. In order to investigate the role of permanent and temporary changes in income in the determination of the trade balance. Blanchard-Quah variance decomposition procedure is applied. The results of analysis support the conclusion that transitory income shocks are major reasons for the change in the trade balance, and that negative correlation between the trade balance and income is primarily due to transitory shocks. Thus, these results are more consistent with intertemporal models with the dichotomous view in which the aggregate demand shocks are responsible for cyclical variations in the trade balance and income and aggregate supply is responsible for the long-run growth of the economy.

Original languageEnglish (US)
Pages (from-to)327-333
Number of pages7
JournalApplied Economics
Volume32
Issue number3
DOIs
StatePublished - Feb 20 2000
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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