Frauke Skudelny

The impact of EMU on trade flows

The Impact of EMU on Trade Flows. — In this paper we quantify the impact of exchange rate volatility on trade flows within the EU with the help of a gravity trade model. We consider bilateral instead of total exports, and we use panel data. Moreover, we introduce dynamics into the model, taking lagged exports as explanatory variable. The estimation of this model for the period 1962–1995 leads to significant negative coefficients for the proxy of exchange rate variability. We use these estimates to calculate the potential trade-creating effect of a monetary union, setting the exchange rate volatility equal to zero.ZusammenfassungDer Einfluss der EuropÄischen WÄhrungsunion auf die Handelsströme. — In diesem Artikel wird mithilfe eines Handelsmodells, dem der GravitÄtsansatz zugrunde liegt, quantifiziert, wie sich Wechselkursschwankungen auf die Handelsströme innerhalb der EU auswirken. Statt aggregierter werden bilaterale Exporte verwendet und in Form eines Panel-Daten-Modells geschÄtzt. Eine Dynamik wird in das Modell insofern eingebaut, als die verzögerten Exporte als erklÄrende Variable verwendet werden. Die SchÄtzung des Modells für die Periode 1962–1995 ergibt signifikante negative Koeffizienten für die verzögerte Variable der Wechselkursschwankungen. Setzt man diese Schwankungen gleich null, lÄsst sich mithilfe der SchÄtzungen der mögliche Umfang des Handel schaffenden Effektes der WÄhrungsunion ermitteln.

Inflation and Productivity Differentials in EMU

The aim of this paper is to find out whether the Balassa-Samuelson effect is important in EMU. We use panel data going from 1971 to 1995 for the current EU members in order to estimate the long run effect of bilateral differences in productivity growth differential between the traded and non-traded goods sector on bilateral inflation differentials. The regression results indicate that there is little evidence for a significant effect of the productivity differential, as proposed by the theory. The productivity growth in the non-traded goods sector alone does however have a significant effect on inflation. According to our regression results, less than one percent of the inflation differentials between EU countries is on average due to the productivity growth in the traded and the non-traded goods sector. However, the impact of productivity shocks was quite substantial, leading to a maximum of 7 percent increase in inflation differentials.

Understanding the Weakness in Global Trade - What is the New Normal?

Global trade has been exceptionally weak over the past four years. While global trade grew at approximately twice the rate of GDP prior to the Great Recession, the ratio of global trade to GDP growth has declined to about unity since 2012. This paper assesses to what extent the change in the relationship between global trade and global economic activity is a temporary phenomenon or constitutes a lasting change. It finds that global trade growth has been primarily dampened by two factors. First, compositional factors, including geographical shifts in economic activity and changes in the composition of aggregate demand, have weighed on the sensitivity of trade to economic activity. Second, structural developments, such as waning growth in global value chains, a rise in non-tariff protectionist measures and a declining marginal impact of financial deepening, are dampening the support from factors that boosted global trade in the past. Notwithstanding the particularly pronounced weakness in 2015 that is assessed to be mostly a temporary phenomenon owing to a number of country-specific adverse shocks, the upside potential for trade over the medium term appears to be limited. The JEL Classification: F10, F13, F14, F15

Forecast Combination for Euro Area Inflation - A Cure in Times of Crisis?

The period of extraordinary volatility in euro area headline inflation starting in 2007 raised the question whether forecast combination methods can be used to hedge against bad forecast performance of single models during such periods and provide more robust forecasts. We investigate this issue for forecasts from a range of short-term forecasting models. Our analysis shows that there is considerable variation of the relative performance of the different models over time. To take that into account we suggest employing performance-based forecast combination methods, in particular one with more weight on the recent forecast performance. We compare such an approach with equal forecast combination that has been found to outperform more sophisticated forecast combination methods in the past, and investigate whether it can improve forecast accuracy over the single best model. The time-varying weights assign weights to the economic interpretations of the forecast stemming from different models. The combination methods are evaluated for HICP headline inflation and HICP excluding food and energy. We investigate how forecast accuracy of the combination methods differs between pre-crisis times, the period after the global financial crisis and the full evaluation period including the global financial crisis with its extraordinary volatility in inflation. Overall, we find that, first, forecast combination helps hedge against bad forecast performance and, second, that performance-based weighting tends to outperform simple averaging.