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Keeping track of global trade in real time

Jaime Martinez-Martin and Elena Rusticelli
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Elena Rusticelli: OECD

No 1524, OECD Economics Department Working Papers from OECD Publishing

Abstract: This paper builds an innovative composite world trade cycle index (WTI) by means of a dynamic factor model to monitor and perform short-term forecasts in real time of world trade growth of both goods and (usually neglected) services. The selection of trade indicator series is made using a multidimensional approach, including Bayesian model averaging techniques, dynamic correlations and Granger non-causality tests in a linear VAR framework. To overcome real-time forecasting challenges, the dynamic factor model is extended to account for mixed frequencies, to deal with asynchronous data publication and to include hard and survey data along with leading indicators. Nonlinearities are addressed with a Markov switching model. Simulations analysis in pseudo real-time suggests that: i) the global trade index is a useful tool to track and forecast world trade in real time; ii) the model is able to infer global trade cycles precisely and better than the few competing alternatives; and iii) global trade finance conditions seem to lead the trade cycle, in line with the theoretical literature.

Keywords: bayesian model averaging; cycles; dynamic factor models; goods trade; granger non-causality; leading indicators; markov switching models; Real-time forecasting; services trade; VAR models; world trade (search for similar items in EconPapers)
JEL-codes: C2 E27 E32 (search for similar items in EconPapers)
Date: 2018-12-13
New Economics Papers: this item is included in nep-ets, nep-for, nep-int and nep-mac
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Journal Article: Keeping track of global trade in real time (2021) Downloads
Working Paper: Keeping track of global trade in real time (2020) Downloads
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