A Global Trade Model for the Euro Area

We propose a model for analyzing euro area trade based on the interaction between macroeconomic and trade variables. First, we show that macroeconomic variables are necessary to generate accurate short-term trade forecasts; this result can be explained by the high correlation between trade and macro...

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Bibliographic Details
Published in:Finance and economics discussion series 2015-03, Vol.2015 (13), p.1-34
Main Authors: Modugno, Michele, Osbat, Chiara, D'Agostino, Antonello
Format: Article
Language:English
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Summary:We propose a model for analyzing euro area trade based on the interaction between macroeconomic and trade variables. First, we show that macroeconomic variables are necessary to generate accurate short-term trade forecasts; this result can be explained by the high correlation between trade and macroeconomic variables, with the latter being released in a more timely manner. Second, the model tracks well the dynamics of trade variables conditional on the path of macroeconomic variables during the great recession; this result makes our model a reliable tool for scenario analysis. Third, we quantify the contribution of the most important euro area trading partners (regions) to the aggregate extra euro area developments: we evaluate the impact of an increase of the external demand from a specific region on the extra euro area trade.
ISSN:1936-2854
DOI:10.17016/FEDS.2015.013