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Crisis severity and the international trade network

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  • Endrész, Marianna
  • Skudelny, Frauke

Abstract

In this paper we analyse the role of the international trade network for the strength of the global recession across countries. The novelty of our paper is the use of value-added trade data to capture the importance of trade network structure. We estimate with BMA techniques how far network indicators measuring interlinkages in terms of value added trade has explanatory power both for the length and the depth of the recent crisis once we control for pre-crisis macroeconomic fundamentals. Our main findings are that the macroeconomic control variables with the strongest explanatory power for the length and the depth of the crisis are the growth rates of credit and of the real effective exchange rate in the pre-crisis period and, though to a lesser extent, GDP and inflation growth over the same period and pre-crisis foreign exchange reserves. Government debt, the GVC participation index and net foreign assets have very little explanatory power in the BMA estimations. The models JEL Classification: F14, C45, C52, C67

Suggested Citation

  • Endrész, Marianna & Skudelny, Frauke, 2016. "Crisis severity and the international trade network," Working Paper Series 1971, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20161971
    Note: 176751
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    More about this item

    Keywords

    Bayesian model averaging; crisis indicators; network indicators; value added trade; WIOD;

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models

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