The Effect of Changes in Economic Acitivity on U.S. Trade Flows

Abstract

Recent events have demonstrated an increasing need to gain a better understanding of how changes in economic activity here and abroad tend to affect U.S. trade flows. During the couple of years leading up to the multilateral realignment of exchange rates at the Smithsonian Conference in December, 1971, the discussion of how changes in business conditions affect trade balances centered upon the question of how to isolate basic trends in trade flows from temporary, and presumably reversible influences. For example in an attempt to guage the size of the disequilibrium in the U.S. foreign payments balance that existed in 1971, the Organization for Economic Co-operation and Development (OECD), estimated what amounts cyclical influences might have added to or subtracted from the U.S. current payments balance during that year. Further attempts to estimate such effects were made subsequently so as to enable policymakers to form an opinion by how much exchange rate changes and other policy meas