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Modelling global trade flows: results from a GVAR model

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  • Bussière, Matthieu
  • Chudik, Alexander
  • Sestieri, Giulia

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

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Date of creation: Sep 2009
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Handle: RePEc:ecb:ecbwps:20091087

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Keywords: Exchange Rates; global imbalances; Global VAR; international trade; trade elasticities;

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Citations

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Cited by:
  1. Matthieu Bussière & Giovanni Callegari & Fabio Ghironi & Giulia Sestieri & Norihiko Yamano, 2011. "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-09," NBER Working Papers 17712, National Bureau of Economic Research, Inc.
  2. Minoas Koukouritakis & Athanasios Papadopoulos & Andreas Yannopoulos, 2013. "Linkages between the Eurozone and the South-Eastern European Countries: A Global VAR Analysis," Working Papers 1304, University of Crete, Department of Economics.
  3. Minoas Koukouritakis & Athanasios Papadopoulos & Andreas Yannopoulos, 2013. "Linkages between the Eurozone and the South-Eastern European Countries: A VECMX* Analysis," Working Papers 1302, University of Crete, Department of Economics.
  4. Nie, Jun & Taylor, Lisa, 2013. "Economic growth in foreign regions and U.S. export growth," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 31-63.
  5. Bilge Erten, 2012. "Macroeconomic transmission of eurozone shocks to emerging economies," Working Papers 2012-12, CEPII research center.
  6. Anderton, Robert & Tewolde, Tadios, 2011. "The global financial crisis: trying to understand the global trade downturn and recovery," Working Paper Series 1370, European Central Bank.
  7. Alexander Chudik & Michael Fidora, 2012. "How the global perspective can help us identify structural shocks," Staff Papers, Federal Reserve Bank of Dallas, issue Dec.
  8. Ines Buono & Filippo Vergara Caffarelli, 2013. "Trade elasticity and vertical specialisation," Temi di discussione (Economic working papers) 924, Bank of Italy, Economic Research and International Relations Area.
  9. Hugo Gerard, 2012. "Co-movement in Inflation," RBA Research Discussion Papers rdp2012-01, Reserve Bank of Australia.
  10. 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.
  11. Allegret, Jean-Pierre & Sallenave, Audrey, 2014. "The impact of real exchange rates adjustments on global imbalances: A multilateral approach," Economic Modelling, Elsevier, vol. 37(C), pages 149-163.
  12. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2010. "Exports and sectoral financial dependence: evidence on French firms during the great global crisis," Working Paper Series 1227, European Central Bank.
  13. International Monetary Fund, 2011. "Growth Spillover Dynamics From Crisis to Recovery," IMF Working Papers 11/218, International Monetary Fund.
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