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Comparing Trade Balance Closures in the GTAP-Recursive Dynamic (GTAP-RD) Model Framework

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  • Burfisher, Mary
  • Yuan, Wen Jin

Abstract

This paper explores the importance of macro closure rules governing the balance of trade and foreign savings in the results of model simulations using a recursive dynamic, multi-country CGE model. It first presents a stylized shock in which a single country experiences a total output productivity shock, and compares results when global capital is assumed to move across regions until expected rates of return are equalized, versus a closure that fixes regions' real trade balance. Results between the two closures differ in magnitudes and in many cases differ in sign as both macro and micro adjustments occur to accommodate the alternative closure rules. After illustrating these mechanisms, the paper provides a simulation of the Trans-Pacific Partnership, comparing selected results under two closure rules. Results signal the importance of understanding the macroeconomic policies being pursued by a country and reflecting those in the appropriate choice of trade balance closure.

Suggested Citation

  • Burfisher, Mary & Yuan, Wen Jin, 2020. "Comparing Trade Balance Closures in the GTAP-Recursive Dynamic (GTAP-RD) Model Framework," Conference papers 333221, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    • Handle: RePEc:ags:pugtwp:333221
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    File URL: https://ageconsearch.umn.edu/record/333221/files/10044.pdf
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    References listed on IDEAS

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    1. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? And If Not, How Costly is Adjustment Likely To Be?," NBER Working Papers 11541, National Bureau of Economic Research, Inc.
    2. Edwards, Sebastian, 2006. "The U.S. current account deficit: Gradual correction or abrupt adjustment?," Journal of Policy Modeling, Elsevier, vol. 28(6), pages 629-643, September.
    3. Andrés Fernández & Michael W Klein & Alessandro Rebucci & Martin Schindler & Martín Uribe, 2016. "Capital Control Measures: A New Dataset," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 64(3), pages 548-574, August.
    4. Sebastian Edwards, 2005. "Is the U.S. Current Account Deficit Sustainable? If Not, How Costly Is Adjustment Likely to Be?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 36(1), pages 211-288.
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