Macroeconomic closure

Adjustment on exports and imports relatively to price changes induce pressure to change on the trade balance.

A first alternative of modelling is considering that trade balance remains equilibrated in the long term because shift in trade balance induce pressure on the exchange rate that changes export competitiveness and import buying capacity.

In this framework, real effective exchange rate is considered in the model as endogeneous and “current account” is fixed in real terms (as a share of wolrd GDP). What is called “current account” in MIRAGE designates in fact:

This approache is the one used in the standard version

However, in the case of shorter modelling period, it can be relevant to consider that exchange rate does not have time to adjust. Under this assumption, trade policy will have stronger effect on GDP and the future income.