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Sentiment toward Trading Partners and International Trade

Author

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  • Edward M Feasel

    (Soka University of America, 1 University Drive, Aliso Viejo, CA 92656, USA)

  • Nobuyuki Kanazawa

    (Department of Economics, Cornell University, 404 Uris Hall, Ithaca, NY 14853-7601, USA)

Abstract

This paper utilizes panel VAR analysis to investigate the relationship between the sentiment of Japanese citizens toward their trading partners and the flow of trade. Using a system GMM approach, short- and long-run restrictions are applied in a panel VAR setting for the first time to identify structural shocks to sentiment, imports, exports, and the exchange rate. Results show that people's collective psychological workings and trade patterns are interrelated. Evidence of a strong asymmetric relationship between imports and sentiment is found: increases in sentiment lead to higher imports, but a positive shock to imports causes significant drops in sentiment.

Suggested Citation

  • Edward M Feasel & Nobuyuki Kanazawa, 2013. "Sentiment toward Trading Partners and International Trade," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 39(3), pages 309-327.
    • Handle: RePEc:pal:easeco:v:39:y:2013:i:3:p:309-327
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