Seminar on 15 January Tuesday at 2 pm

Title: Long-run relationship between the unemployment rate and the trade balance in the United States: an empirical analysis

Speaker: Haydory Akbar Ahmed

Missouri State University

Department of Economics, 901 S National Avenue

Springfield, MO 65897, USA

Abstract:

Dynamics between the unemployment rate and the trade balance has both economic and political relevance.
From a macroeconomic perspective, the presence of a long run co-movement or equilibrium relationship
along with the nature of the short-run fluctuations in the long run co-movement will help us analyze the
dynamics between the two in an objective manner. We use quarterly data from 1947: Q1 to 2017: Q4 on
unemployment and trade balance to GDP ratio in the United States. Although traditional cointegration
tests fail to detect a statistically significant long run co-movement, a couple of threshold cointegration tests
confirm statistical evidence in favor of threshold cointegration or threshold long run co-movement between
the two. Estimated threshold vector error-correction model shows statistically significant evidence of falling
unemployment rate with deteriorating trade balance. This finding indicates that as unemployment rates go
down, the trade balance deteriorates to maintain the long run co-movement. Arguably, as unemployment
decline imports rise faster than exports causing the trade balance to deteriorate.