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Modelling Global Trade Flows - Results from a GVAR Model

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Abstract

This paper uses a Global Vector Auto-Regression (GVAR) model in a panel of 21 emerging market and advanced economies to investigate the factors behind the dynamics of global trade flows, with a particular view on the issue of global trade imbalances and on the conditions of their unwinding. The GVAR approach enables us to make two key contributions: first, to model international linkages among a large number of countries, which is a key asset given the diversity of countries and regions involved in global imbalances, and second, to model exports and imports jointly. The latter proves to be very important due to the internationalisation of production and the high import content of exports. The model can be used to gauge the effect on trade flows of various scenarios, such as an output shock in the United States, a shock to the US real effective exchange rate and shocks to foreign (German and Chinese)variables. Results indicate in particular that world exports respond much more to a (normalised) shock to US output than to a real effective depreciation of the dollar. In addition, the model can be used to monitor trade developments, such as the sharp contraction in world trade that took place in the wake of the financial crisis. While the fall in imports seems well accounted for by the model,the fall in exports of several countries remains partly unexplained, suggesting perhaps that specific factors might have been at play during the crisis. JEL Classification: F10, F17, F32, C33.

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1087.

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Length: 66 pages
Date of creation: Sep 2009
Date of revision:
Handle: RePEc:ecb:ecbwps:20091087

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Keywords: International trade; global imbalances; global VAR; exchange rates; trade elasticities.;

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References

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Cited by:
  1. Matthieu Bussière & Alexander Chudik & Giulia Sestieri, 2012. "Modelling global trade flows: results from a GVAR model," Globalization and Monetary Policy Institute Working Paper 119, Federal Reserve Bank of Dallas.
  2. Bilge Erten, 2012. "Macroeconomic transmission of eurozone shocks to emerging economies," Working Papers 2012-12, CEPII research center.
  3. Jean-Charles Bricongne & Lionel Fontagné & Guillaume Gaulier & Daria Taglioni & Vincent Vicard, 2010. "Exports and sectoral financial dependence: evidence on French firms during the great global crisis," Working Paper Series 1227, European Central Bank.
  4. Bernardina Algieri, 2011. "Modelling export equations using an unobserved component model: the case of the Euro Area and its competitors," Empirical Economics, Springer, vol. 41(3), pages 593-637, December.
  5. International Monetary Fund, 2011. "Growth Spillover Dynamics from Crisis to Recovery," IMF Working Papers 11/218, International Monetary Fund.
  6. Robert Anderton, 2011. "The global financial crisis: trying to understand the global trade downturn and recovery," Working Paper Series 1370, European Central Bank.
  7. Hugo Gerard, 2012. "Co-movement in Inflation," RBA Research Discussion Papers rdp2012-01, Reserve Bank of Australia.
  8. Alexander Chudik & Michael Fidora, 2012. "How the global perspective can help us identify structural shocks," Staff Papers, Federal Reserve Bank of Dallas, issue Dec.

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