Structural balance of trade deficits in a small open economy with exogenous capital flows : A monetary approach

Analysis of a "structural" balance of trade model which can be interpreted as combining two major building blocks. The first one is identical to the monetary approach to the balance of payments. The second, which explains the price level, consists of the orthodox Scandinavian model of wage and price determination, a structural approach to inflation. It is shown that under these assumptions the balance of trade deficit can be broken and down into a structural, an imported, and a home-made component. (Economische Voorlichtingsdienst)