A Note on the Time-Varying Impact of Global, Region- and Country-Specific Uncertainties on the Volatility of International Trade

Selcuk Gul and Rangan Gupta

No 202025, Working Papers from University of Pretoria, Department of Economics

Abstract: We use a dynamic factor model with time-varying parameters and stochastic volatility to decompose the variance of exports and imports over time for 22 Organization for Economic Co-operation and Development (OECD) countries spanning the quarterly period of 1960:01 to 2016:04 into contributions from country- and region-specific uncertainties and uncertainty common to all countries. We find that, while idiyosyncratic uncertainty has a dominant role in explaining the volatility of international trade, global, country-, and region-specific uncertainties drives around 40% of the volatility of real exports and imports, with the impact of the latter three uncertainties rising in explanatory power during episodes of crises. Our results have important policy implications.

Keywords: Dynamic factor model; time-varying parameters; stochastic volatility; uncertainty shocks; trade volatility (search for similar items in EconPapers)
JEL-codes: C32 F10 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2020-03
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:pre:wpaper:202025

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