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Empirical estimation of trend and cyclical export elasticities

  • Jane Haltmaier
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    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.

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    File URL: http://www.federalreserve.gov/pubs/ifdp/2011/1030/default.htm
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    File URL: http://www.federalreserve.gov/pubs/ifdp/2011/1030/ifdp1030.pdf
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    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1030.

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    Date of creation: 2011
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    Handle: RePEc:fip:fedgif:1030
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    1. 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.
    2. Vahid, F & Engle, Robert F, 1993. "Common Trends and Common Cycles," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(4), pages 341-60, Oct.-Dec..
    3. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc.
    4. Fadiga, Mohamadou L. & Misra, Sukant K., 2007. "Common Trends, Common Cycles, and Price Relationships in the International Fiber Market," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 32(01), April.
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