TY  - JOUR
AU  - Backus,David
AU  - Kehoe,Patrick J.
AU  - Kydland,Finn E.
TI  - Dynamics of the Trade Balance and the Terms of Trade:  The S-Curve
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 4242
PY  - 1992
Y2  - December 1992
UR  - http://www.nber.org/papers/w4242
L1  - http://www.nber.org/papers/w4242.pdf
N1  - Author contact info:
David Backus
Stern School of Business
NYU
44 West 4th Street
New York, NY 10012-1126
Tel: 212/998-0873
Fax: 212/995-4221
E-Mail: dbackus@stern.nyu.edu

Patrick Kehoe
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN  55480-0291
Tel: 612/204-5525
Fax: 612/204-5515
E-Mail: pkehoe@res.mpls.frb.fed.us

Finn Kydland
Department of Economics
University of California, Santa Barbara
Santa Barbara, CA 93106-9210
Tel: 805/893-5464
Fax: 805/893-8830
E-Mail: kydland@econ.ucsb.edu
AB  - We provide a theoretical interpretation of two features of international data: the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in the terms of trade, but positively correlated with past movements. We document these same properties in a two-country stochastic growth model in which trade fluctuations reflect, in large part, the dynamics of capital formation. We find that the general equilibrium perspective is essential: The relation between the trade balance and the terms of trade depends critically on the source of fluctuations.
ER  -