Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-09

Bussière, Matthieu; Callegari, Giovanni; Ghironi, Fabio; Sestieri, Giulia; Yamano, Norihiko

doi:10.3386/w17712

Cited by 61 publications

(95 citation statements)

References 21 publications

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“…This calibration also implies that the core is essentially a closed economy, following a self-oriented monetary policy. The share of home-made goods in the periphery's consumption basket is set to 0.7, consistently with the average import content of private consumption estimated in Bussière et al (2011) for the euro area member states. Correcting this figure for the relative country size as in Sutherland (2005) implies the import share in the core's consumption of 0.003.…”

Section: Calibration 31 Structural Parametersmentioning

confidence: 91%

Macroprudential policy and imbalances in the euro area

Brzoza‐Brzezina

Kolasa

Makarski

2015

Journal of International Money and Finance

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Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a two-economy macrofinancial DSGE model and simulate the effects of macroprudential policies under the assumption of asymmetric shocks hitting the core and the periphery. We find that macroprudential policy is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be decentralized. Area-wide policy is almost ineffective in this respect. JEL: E32, E44, E58

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Section: Calibration 31 Structural Parametersmentioning

confidence: 91%

Macroprudential policy and imbalances in the euro area

Brzoza‐Brzezina

Kolasa

Makarski

2015

Journal of International Money and Finance

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“…Our estimates of η Y are of the same order of magnitude-close to 2-as the long-run income elasticities of import demand (based on aggregate data) found in the literature (see Table A.3). When we estimate import growth based on GDP growth, Bussière et al (2011), Table 4, estimates for 18 OECD countries (1985Q1-2010Q2); Garcimartin and Rivas (2012), estimates based on data for 1975Onaran and Galanis (2012), Table 9A; Chen et al (2012), the estimated imports closely track actual imports-leaving almost no variance to be explained by other factors. How can this be explained?…”

Section: Power and The Useful Economistmentioning

confidence: 98%

“…We divided available country-specific estimates of η P by 2 so as to make them comparable with our estimates of η C .These converted estimates (appearing in Table A.5) corroborate the conclusion that the sensitivity of imports to RULCs is limited. Bussière et al (2011). The direct import content of exports is zero, because the re-exports of imports were excluded from their analysis.…”

Section: Bibliographymentioning

confidence: 99%

“…ε Y = the world income elasticity of export demand; and ε C = the RULC elasticity of export demand. Equation (T.2) was estimated using annual average growth rates for exports, OECD GDP and RULC ( Senhadji (1997), Bennett et al (2008), Athanasoglou (2011), Bussière et al (2011), Garcimartin and Rivas (2012) and Chen et al (2012) have been converted into RULC elasticities (as explained in the text). …”

Section: Exportsmentioning

confidence: 99%

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Europe's Hunger Games: Income Distribution, Cost Competitiveness and Crisis

Storm¹,

Naastepad

2014

Cambridge Journal of Economics

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The dominant view, both on the mainstream right and on the left, holds that the Eurozone crisis is a crisis of labour-cost competitiveness-with trade imbalances (and hence foreign indebtedness) being driven by divergences in relative unit labour costs (RULCs) between surplus and deficit countries. To re-balance Eurozone growth, the mainstream solution is a deflationary policy of 'internal devaluation' (i.e. cutting the wage share by as much as 30%) in the deficit countries. The 'progressive' view holds that the surplus countries should adjust by raising their wage shares. We argue that both sides of this debate are wrong and unhelpful. Europe's trade imbalances are determined by domestic and world demand-whilst RULC divergences play only a negligible role. Eurozone growth can only be revived when Eurozone demand growth is restored, not by lowering wages here and/or raising them there. The current deflationary adjustment forced on the wage-led economies of Greece, Italy, Portugal and Spain is self-destructive: it is a 'confidence killer', not only deepening the free fall of southern European incomes but also damaging their productive base and productivity growth. The outlook is depressing-further increases in already high unemployment rates, inequality measures and poverty rates inconceivable in prosperous Europe just a few years ago-and arguably dystopian.

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“…Some papers invoke the change in the composition of aggregate demand (Bussière et al 2013) while others focus on the weakness in intra-euro area trade (the EU trade bloc accounts for one-third of total world trade). In this regard, what has really been special in the current trade slowdown period is that it has been mainly driven by emerging economies.…”

Section: Introductionmentioning

confidence: 99%

Breaking Down World Trade Elasticities: a Panel ECM Approach

Martínez-Martin¹

2016

gwp

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This paper exhaustively analyses the recent decline of international trade elasticities to output growth. We extend an empirical model of import demand functions to account not only for transitory factors, such as relative prices and import intensity-adjusted measures of demand (I-O Tables), but also for habitually neglected permanent factors such as protectionism, vertical integration (i.e. Global Value Chains) and foreign direct investment (FDI). Dealing with a non-stationary heteregenous panel of 27 countries, we estimate a panel Error Correction Model from 1960 to 2015 in order to break down world trade elasticities. Our main findings evidence: i) the presence of panel (cointegrating) structural changes in the trade-to-GDP relationship in 2000 and 2009, private consumption being a source of disruption; ii) although investment and exports are the most sensitive, import-intensive components of demand, this is far from being transitory, which is clearly weighing on the current slowdown; iii) the relevant contribution of GVCs shows a procyclical pattern, questioning the permanent nature of the current levelling-off of vertical integration processes. The lack of progress in reducing import tariffs and the usual discarded, complementary relationship between FDI and imports have a residual role. All in all, our results have substantial policy implications, as they reinforce the idea of a historical break towards a new 'normal' trading phase.

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Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-09

Abstract: NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

Cited by 61 publications

References 21 publications

Macroprudential policy and imbalances in the euro area

Macroprudential policy and imbalances in the euro area

Europe's Hunger Games: Income Distribution, Cost Competitiveness and Crisis

Breaking Down World Trade Elasticities: a Panel ECM Approach

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