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This paper examines the role of the exchange rate in U.S. external adjustments. The results show that the ex change rate is an important transmission channel of influence on prices, and with longer lags, on income and the trade balance. The effects of the exchange rate and relative prices on the trade balance are not symmetric even in the long run. Exchange rate feedback is insignificant and makes little difference in trade balance adjustment. There are also indications that the response of relative prices to the exchange rate shifted in recent years. Such changes seem to help explain the persistence of the U.S. trade deficit in recent years for multilateral trade, but not bilateral trade, with Japan or Germany. [ABSTRACT FROM AUTHOR]

Abstract--Many attempts to estimate trade elasticities for Japan have yielded statistically insignificant or implausible results. One reason is that most previously estimated models have undoubtedly misspecified the adjustment of trade volumes to changes in relative prices. In this paper a generalized gamma distributed lag model of Japanese trade is estimated. The estimates confirm that the lags on responses to price changes are much longer than previous estimates have allowed. The estimates are then used to construct a "J-curve" for Japan [ABSTRACT FROM AUTHOR]

To analyze business fixed investment in Japan, which has been unusually volatile in recent years, we develop and apply a log-linear flexible accelerator model. We find that movements in business fixed investment are consistent with movements in output and the tax-adjusted cost of capital, both on average during our entire 1961-1994 sample and during the recent 1986-1994 business cycle. [ABSTRACT FROM AUTHOR]