Jaime Marquez

Trade elasticities for G-7 countries

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.

Bilateral Trade Elasticities

This paper estimates income and price elasticities for bilateral world trade. In addition to testing the properties of the error terms, the dynamic specification, and the assumption of parameter constancy, the analysis presents the first application of the Bank Spectrum estimator to bilateral trade flows for all countries. The paper finds that bilateral trade elasticities exhibit enough of a dispersion to suggest that the direction of trade is sensitive to changes in income and prices. Using the bilateral elasticities as raw data, the analysis obtains the associated multilateral estimates and finds that they are both consistent with the literature and suitable to addressing questions involving multilateral trade. But the evidence also reveals that sole reliance on multilateral elasticities conceals valuable information for both policy applications and empirical analyses of international trade. Copyright 1990 by MIT Press.

Some Simple Tests of the Globalization and Inflation Hypothesis

This paper evaluates the hypothesis that globalization has increased the role of international factors and decreased the role of domestic factors in the inflation process in industrial economies. Toward that end, we estimate standard Phillips curve inflation equations for 11 industrial countries and use these estimates to test several predictions of the globalization and inflation hypothesis. Our results provide little support for that hypothesis. First, the estimated effect of foreign output gaps on domestic consumer price inflation is generally insignificant and often of the wrong sign. Second, we find no evidence that the trend decline in the sensitivity of inflation to the domestic output gap observed in many countries owes to globalization. Finally, and most surprisingly, our econometric results indicate no increase over time in the responsiveness of inflation to import prices for most countries. However, even though we find no evidence that globalization is affecting the parameters of the inflation process, globalization may be helping to stabilize real GDP and hence inflation. Over time, the volatility of real GDP growth has declined by more than the volatility of domestic demand, suggesting that net exports increasingly are acting to buffer output from fluctuations in domestic demand.

Income and Price Elasticities for Exports of Developing Countries

Income and price elasticities for non-oil exports of non-OPEC developing countries play an imp ortant role in the development of policy responses to the debt crisis. These elasticities are estimated for the major Standard Internation al Trade Classification commodity groups. Based on two-stage least sq uares and quarterly data for 1973 to 1984, the income elasticity for non-oil exports ranges between 1.4 and 1.9. The analysis also tests t he properties of the error term, the dynamic specification, and para- metric stability. The sensitivity of the results is assessed using Sh illers lags and band spectrum estimation. Copyright 1988 by MIT Press.

Exchange-Rate Effects on China's Trade

Though Chinas share of world trade exceeds that of Japan, little is known about the response of Chinas trade to changes in exchange rates. The few estimates available have two limitations. First, the data for trade prices are based on proxies for prices from other countries. Secondly, the estimation sample includes the period of Chinas transformation from a centrally-planned economy to a more market-oriented one. We address these limitations with an empirical model explaining the shares of Chinas exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble exports. Parameter estimation uses disaggregated monthly trade data and excludes Chinas decentralization period. We find that a 10 percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by nearly one percentage point. However, the estimated response of imports is negligible and lacks precision.

Money demand in open economies: A currency substitution model for Venezuela

This paper investigates the extent to which domestic money balances in Venezuela are influenced by foreign exchange considerations. To this end, individuals are assumed to choose the levels of foreign and domestic money that minimize the borrowing costs associated with a given level of monetary services. The solution to this optimization problem yields a closed form domestic money demand function. This specification is estimated and the results point to an elasticity of currency substitution in excess of one. Conditioned on these estimates, the paper presents estimates of the out-of-sample exchange-rate risk for the period 1981-1982, prior to the collapse of the fixed exchange rate system in 1983.

Long-Period Trade Elasticities for Canada, Japan, and the United States

Most analyses of imports use brief, postwar samples and offer a large range of elasticity estimates suggesting that the role of income and prices in determining imports is not known with any precision. This paper offers an analysis of that role using data since 1890 for Canada, Japan, and the United States. The elasticities of the log-linear model are estimated and found to be inconsistent with the view that income and prices affect imports. Optimization models are considered and found to predict secular changes in income and price elasticities and explain the dispersion of estimates of the literature. Copyright 1999 by Blackwell Publishing Ltd.

The structure and properties of the Federal Reserve Board Multicountry Model

Abstract The FRB Multicountry Model (MCM) is a linked system of five quarterly national macroeconometric models of the USA, Canada, FR Germany, Japan and the UK. The MCM emphasizes international linkages and has equations for trade in goods and services, investment income flows and exchange rates. This paper documents the current version of the MCM. The paper describes the theoretical structure of the model and presents the empirical estimation results. The paper also describes a series of simulations of fiscal and monetary policy scenarios and external shocks. A complete listing of the model is given.

Exchange-rate effects on China's trade: an interim report

Though Chinas share of world trade is comparable to that of Japan, little is known about the response of Chinas trade to changes in exchange rates. The few estimates available suffer from two limitations. First, the data for trade prices are based on proxies for prices from other countries. Second, the estimation sample includes the period of Chinas transformation from a centrally-planned economy to a market-oriented system. To address these limitations, this paper develops an empirical model explaining the shares of Chinas exports and imports in world trade in terms of the real effective value of the renminbi. The specifications control for foreign direct investment and for the role of imports of parts to assemble merchandise exports. Parameter estimation uses disaggregated monthly trade data and excludes the period during which most of Chinas decentralization occurred. The estimation results suggest that a ten-percent real appreciation of the renminbi lowers the share of aggregate Chinese exports by a half of a percentage point. The same appreciation lowers the share of aggregate imports by about a tenth of a percentage point.

Foreign holdings of U.S. Treasuries and U.S. Treasury yields

Foreign official holdings of U.S. Treasuries increased from