Macroeconomic Closure 1 1

Macroeconomic closure (1.1) #

Adjustment on exports and imports relatively to price changes induce pressure to change on the trade balance.

Endogenous effective exchange rate #

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

In this framework, real effective exchange rate is considered in the model as endogeneous and “current account” is fixed in real terms (as a share of wolrd 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_1.1 for details).