Trade Elasticities for G-7 Countries

113 Pages Posted: 2 Jun 1998

See all articles by Peter Hooper

Peter Hooper

Deutsche Bank Securities, Inc. - Global Markets Research, Economy

Karen Johnson

Government of the United States of America - Division of International Finance (IFDP)

Jaime Marquez

Board of Governors of the Federal Reserve System - International Financial Transactions Section

Date Written: April 1998

Abstract

This paper reports the results of a project to estimate and test the stability properties of conventional equations relating real imports and exports of goods and services for the G-7 countries to their incomes and relative prices. We begin by estimating cointegration vectors and the error-correction formulations. We then test the stability of these equations using Chow and Kalman-Filter tests. The evidence suggests three findings. First, conventional trade equations and elasticities are stable enough, in most cases, to perform adequately in forecasting and policy simulations. Equations for German trade, as well as equations for French and Italian exports are an exception. Second, income elasticities of U.S. trade have not been shifting in a direction that will tend to ease the trend toward deterioration in the U.S. trade position. The income-elasticity gap for Japan found in earlier studies was not confirmed in this analysis. Finally, the price channel is weak, if not wholly ineffective, in the case of continental European countries.

JEL Classification: F4, C5

Suggested Citation

Hooper, Peter and Johnson, Karen H. and Marquez, Jaime, Trade Elasticities for G-7 Countries (April 1998). FRB International Finance Discussion Paper No. 609. Available at SSRN: https://ssrn.com/abstract=86069 or http://dx.doi.org/10.2139/ssrn.86069

Peter Hooper

Deutsche Bank Securities, Inc. - Global Markets Research, Economy ( email )

60 Wall Street
Mail Stop: NYC60-1815
New York, NY 10005
United States

Karen H. Johnson

Government of the United States of America - Division of International Finance (IFDP) ( email )

20th St. and Constitution Ave.
Washington, DC 20551
United States
202-452-2345 (Phone)
202-452-6424 (Fax)

Jaime Marquez

Board of Governors of the Federal Reserve System - International Financial Transactions Section ( email )

20th and C Streets, NW
Washington, DC 20551
United States

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