Introducing Trimmed Imports and Exports

Trade flows are volatile and notoriously difficult to predict. This paper introduces trimmed import and export growth rates for the United States to help improve trade forecasts. We calculate the growth rates as a trimmed mean that strips out subcomponents with less predictive power. By separating the signal from the noise, our trimmed growth rates provide a better perspective on where aggregate imports or exports are heading, particularly at horizons four to 12 months ahead. Consequently, out-of-sample forecasts based on our trimmed growth rates reduce forecast errors by up to 15 percent relative to forecasts from aggregate import or export growth. These trimmed forecasts are simple to compute, outperform both naive forecasts and models that rely on a richer information set, and are particularly useful during episodes with heightened volatility. We update the trimmed growth rates monthly and make them publicly available.