I discuss the need for trade models to incorporate endogenous trade imbalances both to more adequately capture the reality of a global economy with large imbalances and pressures from the financial crisis for countries to reduce imbalances. Conventional general equilibrium trade models...

Trade is a reciprocal relation, and must always be balanced. This paper shows that the traditional partial model of international trade is a monster model, combining the demand and the supply of two different markets into one graph. Such theory thus misleads some people to use trade deficit to...