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Empirical estimation of trend and cyclical export elasticities

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  • Jane Haltmaier

Abstract

This paper uses an adaptation of Vahid and Engle's common trend/common cycle analysis to estimate trend and cyclical export elasticities for trading partner income and real exchange rates for 36 countries. For the countries for which both types of income elasticities can be identified, the cyclical elasticity is on average more than twice as large as the trend elasticity. The methodology is applied to forecasting exports during the recent cycle and it appears to improve on simpler models for about half of the countries. For an aggregate of all of the countries for which separate elasticities can be identified, the RMSE is about half as large for the trend/cycle model as for the simple model.

Suggested Citation

  • Jane Haltmaier, 2011. "Empirical estimation of trend and cyclical export elasticities," International Finance Discussion Papers 1030, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgif:1030
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    References listed on IDEAS

    as
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    5. George Kapetanios, 2003. "A Note on Joint Estimation of Common Cycles and Common Trends in Nonstationary Multivariate Systems," Working Papers 483, Queen Mary University of London, School of Economics and Finance.
    6. Peter Kugler, 2000. "The common trend and common cycle of exports and the real exchange rate: Empirical results from Swiss data," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 136(1), pages 171-180, March.
    7. Clavijo, Fernando & Faini, Riccardo, 1989. "Differentiating cyclical and long-term income elasticities of import demand," Policy Research Working Paper Series 197, The World Bank.
    8. Abdelhak S. Senhadji & Claudio E. Montenegro, 1999. "Time Series Analysis of Export Demand Equations: A Cross-Country Analysis," IMF Staff Papers, Palgrave Macmillan, vol. 46(3), pages 1-2.
    9. George Kapetanios, 2003. "A Note on Joint Estimation of Common Cycles and Common Trends in Nonstationary Multivariate Systems," Working Papers 483, Queen Mary University of London, School of Economics and Finance.
    10. Caporale, Guglielmo Maria & Chui, Michael K F, 1999. "Estimating Income and Price Elasticities of Trade in a Cointegration Framework," Review of International Economics, Wiley Blackwell, vol. 7(2), pages 254-264, May.
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