GDP, trade balance and exchange rate: possible solution to the economic crisis?

Abstract

One of the most important components of effective demand, for an open national economy, revolves around exports, which induce endogenous changes in the level of aggregate consumption and investment. This paper proposes a simultaneous regression model that, based on economic theory, allows establishing the relationship between the gross domestic product (GDP), the trade balance (CB) and the nominal exchange rate (ER) for different periods, sometimes considering some variables as explanatory and others as dependent, that is, taking into consideration the problems of multi-equation models.
In this way, this paper aims to develop a simultaneous structure model that can be useful for forecasting the main macroeconomic variables, especially in the context of an open economy and its relationship with the international economy. The fundamental question has to do with a possible economic policy alternative to boost the recovery of the Mexican economy. In other words, the results obtained from the application of this model are intended to facilitate possible proposals that could be useful to alleviate in some way the effects of the current financial crisis.