A Global Trade Model for the Euro Area

Abstract

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.

Modelling of trade relations between EU countries by the method of minimum spanning trees

“…Factor model of the international trade in the Euro area based on the identification of the interaction between macroeconomic and trade variables was proposed in [9] and the effectiveness of its use for short-term forecasts was proved.…”