Macroeconomic closure

Adjustments on exports and imports relative to price changes induce pressure to change the trade balance.

Endogenous effective exchange rate

We consider that trade balance remains equilibrated in the long term because shifts in trade balance induce pressure on the exchange rate that changes export competitiveness and import buying capacity.

In this framework, the real effective exchange rate is considered in the model as endogenous and “current account” is fixed in real terms (as a share of world GDP): \[ SAV_{s,t} REV_{s,t} = \sum_{i,r} P^{INVTOT}_{s,t} INV_{i,r,s,t} + WGDPVAL_t . CABal_{s,t}.\]

Savings \(SAV_{s,t}\) as well as current account balance \(CABal_{s,t}\) both come from EconMap (see Baseline for details).