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Federal Reserve Bank of Dallas
Globalization and Monetary Policy Institute Working Paper
Euro Area and U.S. External Adjustment: The Role of Commodity Prices and Emerging Market Shocks
Massimo Giovannini
Stefan Hohberger
Robert Kollmann
Marco Ratto
Werner Roeger
Lukas Vogel
Abstract

The trade balances of the Euro Area (EA) and of the U.S. have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and U.S. economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (U.S., 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 U.S. trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and U.S. 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.


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Massimo Giovannini & Stefan Hohberger & Robert Kollmann & Marco Ratto & Werner Roeger & Lukas Vogel, Euro Area and U.S. External Adjustment: The Role of Commodity Prices and Emerging Market Shocks, Federal Reserve Bank of Dallas, Globalization and Monetary Policy Institute Working Paper 344, 06 Aug 2018.
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Keywords: EA and U.S. external adjustment; commodity markets; emerging markets
DOI: 10.24149/gwp344
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