Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined
Abstract
This paper examines the stability of import and export
demand functions for the United States from the first quarter of
1975 to the second quarter of 2001. Analysis readily identifies an export
demand function, with a structural break in the import demand function in 1995
that is rectified by excluding computers and parts from the
import series. The resulting point estimates confirm the
persistence of the income asymmetry. One policy implication of
these findings is that dollar depreciation unaccompanied by a realignment of growth trends
is insufficient to substantially reduce the U.S. trade deficit.