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Forecasting world trade. Direct versus "bottom-up" approaches

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Abstract

In a globalised world economy, global factors have become increasingly important to explain trade-flows at the expense of country-specifc determinants. This paper shows empirically the superiority of direct forecasting methods, in which world trade is directly forecasted at the aggregate levels, relative to "bottom-up" approaches, where world trade results from an aggregation of country-specifc forecasts. Factor models in particular prove rather accurate, where the factors summarise large-scale datasets relevant in the determination of trade-flows. JEL Classification: C53, C32, E37, F17.

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Paper provided by European Central Bank in its series Working Paper Series with number 882.

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Length: 38 pages
Date of creation: Mar 2008
Date of revision:
Handle: RePEc:ecb:ecbwps:20080882

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Keywords: World trade; Factor models; Forecasts; Time series models.;

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