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Structural Balance of Trade Deficits in a Small Open Economy with Exogenous Capital Flows: A Monetary Approach

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  • HEINRICH W. URSPRUNG

Abstract

This paper presents a ‘structural’ balance of trade model which can be interpreted as combining two major building blocks. The first one is identical to the monetary approach to the balance of payments. The second, which explains the price level, consists of the orthodox Scandinavian model of price and wage determination. It is shown that under these assumptions the balance of trade deficit can be broken down into a structural, an imported, and a ‘home‐made’ component. A n empirical illustration of the structural balance of trade model is given for the New Zealand economy.

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  • Heinrich W. Ursprung, 1984. "Structural Balance of Trade Deficits in a Small Open Economy with Exogenous Capital Flows: A Monetary Approach," The Economic Record, The Economic Society of Australia, vol. 60(4), pages 326-339, December.
    • Handle: RePEc:bla:ecorec:v:60:y:1984:i:4:p:326-339
    DOI: 10.1111/j.1475-4932.1984.tb00869.x
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    1. Dornbusch, Rudiger & Mussa, Michael, 1975. "Consumption, Real Balances and the Hoarding Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 16(2), pages 415-421, June.
    2. Branson, William H. & Myhrman, Johan, 1976. "Inflation in open economies : Supply-determined versus demand-determined models," European Economic Review, Elsevier, vol. 7(1), pages 15-34.
    3. Kierzkowski, Henryk, 1976. "Theoretical Foundations of the Scandinavian Model of Inflation," The Manchester School of Economic & Social Studies, University of Manchester, vol. 44(3), pages 232-246, September.
    4. Calmfors, Lars & Viotti, Staffan, 1982. "Wage Indexation, the Scandinavian Model and Macroeconomic Stability in the Open Economy," Oxford Economic Papers, Oxford University Press, vol. 34(3), pages 546-566, November.
    5. Craig, Gary A, 1981. "A Monetary Approach to the Balance of Trade," American Economic Review, American Economic Association, vol. 71(3), pages 460-466, June.
    6. Odd Aukrust, 1970. "Prim I: A Model Of The Price And Income Distribution Mechanism Of An Open Economy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 16(1), pages 51-78, March.
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    Cited by:

    1. Buckle, Robert A. & Kim, Kunhong & Kirkham, Heather & McLellan, Nathan & Sharma, Jarad, 2007. "A structural VAR business cycle model for a volatile small open economy," Economic Modelling, Elsevier, vol. 24(6), pages 990-1017, November.
    2. Robert A Buckle & Kunhong Kim & Heather Kirkham & Nathan McLellan & Jared Sharma, 2002. "A structural VAR model of the New Zealand business cycle," Treasury Working Paper Series 02/26, New Zealand Treasury.

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