Where are global and U.S. trade heading in the aftermath of the trade collapse: issues and alternative scenarios

Filippo di Mauro (filippodimauro1@me.com), Joseph Gruber, Bernd Schnatz (bernd.schnatz@ecb.int) and Nico Zorell

No 1017, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Global and U.S. trade declined dramatically in the wake of the global financial crisis in late 2008 and early 2009. The subsequent recovery in trade, while vigorous at first, gradually lost momentum in 2010. Against this backdrop, this paper explores the prospects for global and U.S. trade in the medium term. We develop a unified empirical framework ? an error correction model ? that exploits the cointegrating relationship between trade and economic activity. The model allows us to juxtapose several scenarios with different assumptions about the strength of GDP growth going forward and the relationship between trade and economic activity. Our analysis suggests that during the crisis both world trade and U.S. exports declined significantly more than would have been expected on the basis of historical relationships with economic activity. Moreover, this gap between actual and equilibrium trade is closing only slowly and could persist for some time to come.

Keywords: International trade; Exports; Global financial crisis (search for similar items in EconPapers)
Date: 2011
New Economics Papers: this item is included in nep-fdg and nep-int
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Citations: View citations in EconPapers (1)

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