On Thursday 20 April, the European University Institute will host the ADEMU seminar Asymmetric Trade Liberalizations and Current Account Dynamics, with Alessandro Barattieri (Collegio Carlo Alberto-ESG UQAM).
The rising current account surplus of Germany in the early 2000s can be decomposed into an increasing surplus in goods trade and a stable deficit in service trade. Spain, Portugal and Greece had stable surpluses in services, but large and increasing deficits in goods trade.
Starting from this evidence, Professor Barattieri proposes asymmetries in the timing of trade liberalizations as a new mechanism affecting the dynamics of the current account. He provides a simple model to convey intuition, solving analytically a log-linear version of the model and deriving an expression where the current account depends on present and future relative changes in the trade costs. Empirical evidence supports the key predictions of the model.
A quantitative investigation of the German surplus is proposed, based on the asymmetric dynamics of both productivity and trade costs in manufacturing and services in the early 2000s. A two-country international real business cycle model is developed, augmented with trade costs. When fed with the actual asymmetric trends found in the German data, the model can generate a current account surplus of about 5\% of GDP. The model delivers large surpluses also when considering only asymmetric trade liberalizations, but fails to generate surpluses consistent with the data when considering only asymmetric productivity.
For further information about this seminar or to register, email email@example.com.