Trends And Fluctuations In Brazilian And Argentine Trade Flows

This paper analyzes the trends and fluctuations of the price and real indexes of Brazilian and Argentine exports and imports in 1980-2002. The analysis uses quarterly data and obtains the trend and fluctuations by applying either the Hodrick-Prescott or the band-pass filter (with periodicity between 1.5 and 8 years) to the original series. The main statistical findings are that: (i) even though the fluctuations of the export and import prices of the two countries are highly correlated, their terms of trade are not because the export price of one country is also highly correlated with the import price of the other country; (ii) in both countries the fluctuations of real imports basically follow the fluctuations of real GDP; and (iii) fluctuations of Brazilian GDP and real imports are highly correlated and seem to lead fluctuations of Argentine exports. To obtain these results the paper analyzes the lead, lag and contemporaneous correlation between the series in question and applies the Granger causality test to investigate whether or not one variable helps to explain the other statistically. The statistical results for the fluctuations are robust for both filters. The trends are also basically the same independently of the filter used and, overall, they seem to converge in the late 1990s. The main policy implication is that exchange-rate coordination may be useful to compensate or smooth the adjustment of the two countries to terms-of-trade shocks, provided that the managed float is flexible enough to allow the bilateral real exchange rate to change according to which country is most affected by the shock. On the real side, synchronization of real GDP would lead to synchronization of real imports, whereas exchange-rate coordination may eliminate the swings of the bilateral real exchange rate between Brazil and Argentina, which is one of the sources of their desynchronized export fluctuations.