QUEST II. A Multi-Country Business Cycle and Growth Model

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In order to close the model and to provide an “echo” for the structural models in linked
simulation, equations determining imports, exports and the evolution of net foreign assets
are added for these countries and regions which are not represented by structural models.
Export equations for those regions are specified in exactly the same ways as for the
structural models (see equation (30)). Imports are determined by an exogenous GDP
compound '', and a wealth effect which is a linear function of the net foreign asset
position of the country or region.

Ю, = (3;6_r / 306_t )^σ (''_t + (U + ε)F_t )                                 (37)

where a small positive constant ε is added to the real interest rate in order to guarantee a
sustainable current account development. Net foreign assets are modelled similarly as in
the structural models (eq.(31) ). All exchange rates of these regions are at the moment
linked to the US dollar.

Table 6: Price elasticities of imports and exports in trade-feedback models

Note:    * Long-run price elasticities have been restricted to 1.

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