Trade Balance and Income Shocks: Experience of Transition Economies |
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Authors: | Marcela Veselkova Julius Horvath |
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Institution: | (1) Department of International Relations and European Studies, Central European University, Budapest, Hungary;(2) Department of Economics, Central European University, Budapest, Hungary |
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Abstract: | This paper investigates the major sources of changes in the trade balance of four Central European and three Baltic transition
economies with an emphasis on the difference between permanent and transitory disturbances to income. In all seven countries
the findings support the hypothesis that transitory disturbances to income are the main determinants of changes in the trade
balance. These results seem to be fairly consistent with inter-temporal models of trade balance, which view transitory shocks
to income as the main source of variations in the trade balance. These results do not seem to support the view that productivity
shocks alone generate most of the variation in the trade balance.
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Keywords: | Trade balance Transition economies Transitory and permanent shocks |
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