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Trade Weakness: Cycle or Trend?

In: International Macroeconomics in the Wake of the Global Financial Crisis

Author

Listed:
  • Alessandro Borin

    (Directorate General for Economics, Statistics and Research, International Relations and Economics Directorate)

  • Virginia Nino

    (European Central Bank)

  • Michele Mancini

    (Directorate General for Economics, Statistics and Research, International Relations and Economics Directorate)

  • Massimo Sbracia

    (Bank of Italy)

Abstract

In 2011–2016 global trade volumes systematically surprised on the downside, to a much larger extent than real GDP; in other words, the income elasticity of trade declined and was lower than expected. This finding has generally been interpreted as evidence of the importance of structural factors in determining the weakness of international trade. However, as income elasticity is itself a cyclical variable, the role of cyclical factors has been underestimated. Once the cyclicality of the elasticity is correctly accounted for, it turns out that cyclical forces have provided the main contribution to the unexpected weakness of trade. In addition, the accuracy of existing forecasts on trade growth can be significantly improved by using real-time information about business conditions, given that a large share of the forecast error depends on mispredicted income elasticities.

Suggested Citation

  • Alessandro Borin & Virginia Nino & Michele Mancini & Massimo Sbracia, 2018. "Trade Weakness: Cycle or Trend?," Financial and Monetary Policy Studies, in: Laurent Ferrara & Ignacio Hernando & Daniela Marconi (ed.), International Macroeconomics in the Wake of the Global Financial Crisis, pages 99-114, Springer.
  • Handle: RePEc:spr:fimchp:978-3-319-79075-6_6
    DOI: 10.1007/978-3-319-79075-6_6
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    More about this item

    Keywords

    Global trade; Trade forecasts; International business cycle;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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