The Long Run Determinants of the U.S. Trade Balance: A Reexamination Using Bi & Multivariate Cointegration Approach

Abstract

This paper extends our understanding of the long-run determinants of the U.S. current account and trade balances. Earlier studies have recognized the long-run effects of fiscal, monetary, and commercial policy variables on the external account balances. But none of them reported the interest rate measures to be cointegrated with the external account balances. This study provides strong evidence to suggest that the various interest rate measures are also the long-run determinants of the U.S. current account and trade balances.