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Structural Change in the External Balances Response to Macroeconomic Policies: Perspective from a Two‐Sector New Open Economy Macroeconomic Model
Author(s) -
Yamamoto Shugo
Publication year - 2013
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12087
Subject(s) - economics , impulse response , open economy , elasticity of substitution , structural change , small open economy , balance of trade , elasticity (physics) , macroeconomics , current account , terms of trade , econometrics , monetary economics , monetary policy , exchange rate , production (economics) , mathematical analysis , materials science , mathematics , composite material
The response of the J apanese trade balance against expansionary macroeconomic policy shocks changed from positive to negative in the 1990s. With consideration of intratemporal (between tradable and nontradable goods) and intertemporal elasticity of substitutions, we investigate this cause using two‐sector new open economy macroeconomics ( NOEM ). Empirical methods, considering structural change, were applied and show that before the break, intratemporal elasticity of substitution dominates, but subsequently the relation inverted and intertemporal elasticity became predominant and hence, the theoretical response of trade balance changed. Finally, we verify this theoretical implication empirically by impulse response analysis of structural vector auto regression.