DP379 | Intertemporal Prices and the US Trade Balance in Durable Goods

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This paper shows that virtually all of the rapid worsening of the US trade deficit since 1982 can be attributed to the balance on durable goods. Moreover, this deterioration has been concentrated in capital goods rather than consumer durables intertemporal prices play a key role in the behaviouring or automobiles. In the context of a simple model, we show that the trade balance in durables (but not in nondurables) durables is the role of intertemporal prices in the latter. This result suggests that the deficit on durables may be due to a reduction of their intertemporal prices associated with, among other things, the temporary appreciation of the dollar in the early 1980s. The key role of intertemporal prices is confirmed by our econometric findings.