Trade Weakness: Cycle or Trend?

Alessandro Borin (), Virginia Di Nino, Michele Mancini and Massimo Sbracia
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Alessandro Borin: Directorate General for Economics, Statistics and Research, International Relations and Economics Directorate

A chapter in International Macroeconomics in the Wake of the Global Financial Crisis, 2018, pp 99-114 from Springer

Abstract: 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.

Keywords: Global trade; Trade forecasts; International business cycle (search for similar items in EconPapers)
JEL-codes: E32 F1 F4 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1007/978-3-319-79075-6_6

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