PRINCETON STUDIES IN INTERNATIONAL ECONOMICS
No. 87, August 2000
TRADE ELASTICITIES
FOR THE G-7 COUNTRIES
PETER HOOPER
KAREN JOHNSON
AND
JAIME MARQUEZ
INTERNATIONAL ECONOMICS SECTION
DEPARTMENT OF ECONOMICS
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
PRINCETON STUDIES
IN INTERNATIONAL ECONOMICS
PRINCETON STUDIES IN INTERNATIONAL ECONOMICS are
published by the International Economics Section of the
Department of Economics of Princeton University. Although the Section sponsors the Studies, the authors are
free to develop their topics as they wish. The Section
welcomes the submission of manuscripts for publication
in this and its other series. Please see the Notice to
Contributors at the back of this Study.
The authors of this Study are Peter Hooper, Karen
Johnson, and Jaime Marquez. Peter Hooper is Chief U.S.
Economist and Co-Head of Global Economic Research at
Deutsche Bank Securities. He previously served as Deputy
Director of the Division of International Finance at the
Federal Reserve Board and as Associate Economist for the
Federal Open Market Committee. He has published widely
in the fields of empirical international economics and
policy analysis. This is his second publication with the
International Economics Section.
Karen Johnson is Director of the Division of International Finance at the Federal Reserve Board and Economist for the Federal Open Market Committee.
Jaime Marquez is a Senior Economist in the Division of
International Finance at the Fedearl Reserve Board. His
publications focus on the estimation of the responsiveness
of international trade to changes in economic activity and
relative prices.
GENE M. GROSSMAN,
Director
International Economics Section
PRINCETON STUDIES IN INTERNATIONAL ECONOMICS
No. 87, August 2000
TRADE ELASTICITIES
FOR THE G-7 COUNTRIES
PETER HOOPER
KAREN JOHNSON
AND
JAIME MARQUEZ
INTERNATIONAL ECONOMICS SECTION
DEPARTMENT OF ECONOMICS
PRINCETON UNIVERSITY
PRINCETON, NEW JERSEY
INTERNATIONAL ECONOMICS SECTION
EDITORIAL STAFF
Gene M. Grossman Director
Pierre-Olivier Gourinchas Assistant Director
Margaret B. Riccardi, Editor
Sharon B. Ernst, Editorial Aide
Lalitha H. Chandra, Subscriptions and Orders
Library of Congress Cataloging-in-Publication Data
Hooper, Peter.
Trade elasticities for the G-7 countries / Peter Hooper, Karen Johnson, and Jaime
Marquez.
p. cm. — (Princeton studies in international economics ; no. 87)
Includes bibliographical references.
ISBN 0-88165-259-8
1. International trade—Econometric models. 2. Elasticity (Economics). 3. Balance of
payments—United States. I. Johnson, Karen. II. Marquez, Jaime R. III. Title. IV.
Series.
HF1379.H666 2000
00-063451
382—dc21
CIP
Copyright © 2000 by International Economics Section, Department of Economics,
Princeton University.
All rights reserved. Except for brief quotations embodied in critical articles and reviews,
no part of this publication may be reproduced in any form or by any means, including
photocopy, without written permission from the publisher.
Printed in the United States of America by Princeton University Printing Services at
Princeton, New Jersey
International Standard Serial Number: 0081-8070
International Standard Book Number: 0-88165-259-8
Library of Congress Catalog Card Number: 00-063451
International Economics Section
Department of Economics, Fisher Hall
Princeton University
Princeton, New Jersey 08544-1021
Tel: 609-258-4048
Fax: 609-258-1374
E-mail: [email protected]
Url: www.princeton.edu/~ies
CONTENTS
1
INTRODUCTION
1
2
ECONOMETRIC FORMULATIONS
3
3
4
5
Long-Run Formulation
Short-Run Formulation
Parameter Constancy
Long-Run Elasticities
Short-Run Elasticities
Parameter Constancy
7
7
9
10
4
IMPLICATIONS FOR EXCHANGE RATES
12
5
CONCLUSIONS
13
APPENDIX A: DATA
14
APPENDIX B: LONG-RUN ELASTICITIES
19
19
19
3
ECONOMETRIC RESULTS
Exports
Imports
APPENDIX C: SHORT-RUN ELASTICITIES
Exports
Imports
38
38
46
REFERENCES
55
TABLES
1
Long-Run Elasticities
8
2
Short-Run Elasticities
9
3
Frequency of Violations of Parameter Stability
10
4
Violations of Parameter Stability, 1995–1996
11
5
Growth, Elasticities, and Real Exchange Rates
12
A–1
Bilateral Export Shares
14
A–2
Augmented Dickey-Fuller Test Results
15
B–1
Exports: Sensitivity to Lag Length
20
B–2
Imports: Sensitivity to Lag Length
22
C–1
Exports: Parameter Estimates from the Error-Correction
Model
38
Imports: Parameter Estimates from the Error-Correction
Model
47
C–2
FIGURES
A–1
Canada: Trade, Income, and Prices
15
A–2
France: Trade, Income, and Prices
16
A–3
Germany: Trade, Income, and Prices
16
A–4
Italy: Trade, Income, and Prices
17
A–5
Japan: Trade, Income, and Prices
17
A–6
United Kingdom: Trade, Income, and Prices
18
A–7
United States: Trade, Income, and Prices
18
B–1
Exports for Canada: Chow Tests for the Cointegration
Model
23
Exports for France: Chow Tests for the Cointegration
Model
24
Exports for Germany: Chow Tests for the Cointegration
Model
24
Exports for Italy: Chow Tests for the Cointegration
Model
25
Exports for Japan: Chow Tests for the Cointegration
Model
25
Exports for the United Kingdom: Chow Tests for
the Cointegration Model
26
Exports for United States: Chow Tests for the Cointegration Model
26
Exports for Canada: Predictive Accuracy of the Cointegration Model
27
Exports for France: Predictive Accuracy of the Cointegration Model
27
B–2
B–3
B–4
B–5
B–6
B–7
B–8
B–9
B–10 Exports for Germany: Predictive Accuracy of the Cointegration Model
28
B–11 Exports for Italy: Predictive Accuracy of the Cointegration Model
28
B–12 Exports for Japan: Predictive Accuracy of the Cointegration Model
29
B–13 Exports for the United Kingdom: Predictive Accuracy
of the Cointegration Model
29
B–14 Exports for the United States: Predictive Accuracy
of the Cointegration Model
30
B–15 Imports for Canada: Chow Tests for the Cointegration
Model
30
B–16 Imports for France: Chow Tests for the Cointegration
Model
31
B–17 Imports for Germany: Chow Tests for the Cointegration
Model
31
B–18 Imports for Italy: Chow Tests for the Cointegration
Model
32
B–19 Imports for Japan: Chow Tests for the Cointegration
Model
32
B–20 Imports for the United Kingdom: Chow Tests for the
Cointegration Model
33
B–21 Imports for the United States: Chow Tests for the
Cointegration Model
33
B–22 Imports for Canada: Predictive Accuracy of the
Cointegration Model
34
B–23 Imports for France: Predictive Accuracy of the Cointegration Model
34
B–24 Imports for Germany: Predictive Accuracy of the Cointegration Model
35
B–25 Imports for Italy: Predictive Accuracy of the Cointegration Model
35
B–26 Imports for Japan: Predictive Accuracy of the Cointegration Model
36
B–27 Imports for the United Kingdom: Predictive Accuracy
of the Cointegration Model
36
B–28 Imports for the United States: Predictive Accuracy of
the Cointegration Model
37
C–1
Exports for Canada: Chow Tests for the ECM Coefficients
39
C–2
Exports for France: Chow Tests for the ECM Coefficients
40
C–3
Exports for Germany: Chow Tests for the ECM Coefficients
40
C–4
Exports for Italy: Chow Tests for the ECM Coefficients
41
C–5
Exports for Japan: Chow Tests for the ECM Coefficients
41
C–6
Exports for the United Kingdom: Chow Tests for the ECM
Coefficients
42
Exports for the United States: Chow Tests for the ECM
Coefficients
42
Exports for Canada: Predictive Accuracy of the ErrorCorrection Model
43
Exports for France: Predictive Accuracy of the ErrorCorrection Model
43
C–7
C–8
C–9
C–10 Exports for Germany: Predictive Accuracy of the ErrorCorrection Model
44
C–11 Exports for Italy: Predictive Accuracy of the ErrorCorrection Model
44
C–12 Exports for Japan: Predictive Accuracy of the ErrorCorrection Model
45
C–13 Exports for the United Kingdom: Predictive Accuracy
of the Error-Correction Model
45
C–14 Exports for the United States: Predictive Accuracy of
the Error-Correction Model
46
C–15 Imports for Canada: Chow Tests for the ECM Coefficients
48
C–16 Imports for France: Chow Tests for the ECM Coefficients
48
C–17 Imports for Germany: Chow Tests for the ECM Coefficients
49
C–18 Imports for Italy: Chow Tests for the ECM Coefficients
49
C–19 Imports for Japan: Chow Tests for the ECM Coefficients
50
C–20 Imports for the United Kingdom: Chow Tests for the ECM
Coefficients
50
C–21 Imports for the United States: Chow Tests for the ECM
Coefficients
51
C–22 Imports for Canada: Predictive Accuracy of the ErrorCorrection Model
51
C–23 Imports for France: Predictive Accuracy of the ErrorCorrection Model
52
C–24 Imports for Germany: Predictive Accuracy of the ErrorCorrection Model
52
C–25 Imports for Italy: Predictive Accuracy of the ErrorCorrection Model
53
C–26 Imports for Japan: Predictive Accuracy of the ErrorCorrection Model
53
C–27 Imports for the United Kingdom: Predictive Accuracy of
the Error-Correction Model
54
C–28 Imports for the United States: Predictive Accuracy of the
Error-Correction Model
54
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FIGURE A-2: France: Trade, Income, and Prices
12.5
Export Volume
12.5 Import Volume
12
12
11.5
11.5
1970
1975
1980
1985
1990
1995
8.4 Foreign GDP
1970 1975 1980
Domestic GDP
13.75
1985
1990
1995
1970 1975 1980 1985
Relative Import Prices
0
1990
1995
1990
1995
1985
1990
1995
1970 1975 1980 1985
Relative Import Prices
1990
1995
1990
1995
8.2
13.5
8
13.25
1970 1975 1980 1985
Relative Export Prices
0
1990
1995
-.25
-.25
-.5
1970
-.5
1975
1980
1985
1990
1995
1970
1975
1980
1985
FIGURE A-3: Germany: Trade, Income, and Prices
5.5 Export Volume
Import Volume
5
5
4.5
4.5
1970 1975 1980
9.2 Foreign GDP
1985
1990
1995
1970 1975 1980
6.75 Domestic GDP
6.5
9
6.25
8.8
6
1970 1975 1980 1985
Relative Export Prices
1990
1995
0
0
-.5
-.5
1970
1975
1980
1985
1990
1995
1970
1975
1980
1985
FIGURE A-4: Italy: Trade, Income, and Prices
11.5 Export Volume
Import Volume
11
11
10.5
10.5
10
1970
1975
1980
1985
1990
1995
Foreign GDP
1970
1985
1990
1995
1970 1975 1980 1985
Relative Import Prices
.5
1990
1995
1990
1995
1990
1995
12.75
1975
1980
Domestic GDP
8.4
12.5
8.2
12.25
1970 1975 1980 1985
.5 Relative Export Prices
1990
1995
0
0
1970
1975
1980
1985
1990
1995
1970
1975
1980
1985
FIGURE A-5: Japan: Trade, Income. and Prices
11
11
Export Volume
10.5
10.5
10
10
9.5
9.5
1970
7.75
Import Volume
1975
1980
1985
1990
1995
Foreign GDP
1970
13
1975
1980
1985
Domestic GDP
7.5
7.25
12.5
7
1970
1975
1980
1985
1990
1995
Relative Export Prices
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.2
1970
1970
1975
1980 1985 1990 1995
Relative Import Prices
1975
1980
.5
0
1975
1980
1985
1990
1995
1970
1985
1990
1995
FIGURE A-6: United Kingdom: Trade, Income, and Prices
Export Volume
Import Volume
10.5
10.5
10
10
1970
8.4
1975
1980
1985
1990
1995
1970
Foreign GDP
1975
1980
1985
1990
1995
1985
1990
1995
Domestic GDP
11.75
8.2
11.5
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1970 1975 1980 1985
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1990
1995
1970
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0
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1975
1980
1985
1980
Relative Import Prices
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0
1970
1975
1990
1995
1970
1975
1980
1985
1990
1995
FIGURE A-7: United States: Trade, Income, and Prices
6.5
7 Import Volume
Export Volume
6.5
6
6
5.5
5.5
1970
1975
1980
1985
1990
1995
Foreign GDP
1970
1980
1985
1990
1995
1980
1985
1990
1995
1990
1995
8.75 Domestic GDP
7.75
8.5
7.5
7.25
1970 1975 1980 1985
Relative Export Prices
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8.25
1990
1995
1970
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0
0
1975
1980
1985
1990
1995
1975
Relative Import Prices
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1970
1975
1970
1975
1980
1985
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FIGURE B-2: Exports for France: Chow Tests for the Cointegration Model
2
1up
2
5%
1up CHOWs
5%
1
1
1990
2
1991
Nup
1992
1993
1994
1990
1995
2
5%
1
1991
1992
Nup CHOWs
1993
1994
1995
1994
1995
1994
1995
5%
1
1990
2
1991
Ndn
1992
1993
1994
1995
1990
2
5%
1
1991
1992
Ndn CHOWs
1993
5%
1
1990
1991
1992
1993
1994
1995
1990
1991
1992
1993
FIGURE B-3: Exports for Germany: Chow Tests for the Cointegration Model
1up
3
5%
2
2
1
1
1990
1991
1992
1993
Nup
3
1994
1995
5%
1990
2
1
1
1991
1992
1993
Ndn
3
1994
1995
5%
1
1
1991
1992
1993
1994
1991
1995
1993
1992
1993
5%
1994
1990
1991
1992
1993
1995
5%
1994
Ndn CHOWs
3
2
1992
Nup CHOWs
1990
2
1990
1991
3
2
1990
1up CHOWs
3
1995
5%
1994
1995
FIGURE B-4: Exports for Italy: Chow Tests for the Cointegration Model
1up
3
5%
2
2
1
1
1990
1991
Nup
3
1992
1993
1994
1995
5%
1990
2
1
1
1991
Ndn
3
1992
1993
1994
1995
5%
1990
2
1
1
1990
1991
1992
1993
1994
1995
1992
1991
1992
Ndn CHOWs
3
2
1991
Nup CHOWs
3
2
1990
1up CHOWs
3
1990
1991
1992
5%
1993
1994
1995
1994
1995
1994
1995
5%
1993
5%
1993
FIGURE B-5: Exports for Japan: Chow Tests for the Cointegration Model
1
5%
1
1up
.5
5%
1up CHOWs
.5
1990
1
1991
5%
1992
1993
1994
1995
1990
1
Nup
.5
1991
5%
1992
1993
1994
1995
1994
1995
1994
1995
Nup CHOWs
.5
1990
1
1991
5%
1992
1993
1994
1995
1990
1
Ndn
.5
1991
5%
1992
1993
Ndn CHOWs
.5
1990
1991
1992
1993
1994
1995
1990
1991
1992
1993
FIGURE B-6: Exports for the U.K.: Chow Tests for the Cointegration Model
1up
5%
1up CHOWs
2
2
1
1
1990
1991
Nup
1992
1993
1994
1995
1990
5%
2
2
1
1
1990
1991
Ndn
1992
1993
1994
1995
1990
5%
2
1
1
1991
1992
1992
1991
1992
Ndn CHOWs
2
1990
1991
Nup CHOWs
1993
1994
1995
1990
1991
1992
5%
1993
1994
1995
1994
1995
1994
1995
5%
1993
5%
1993
FIGURE B-7: Exports for the U.S.: Chow Tests for the Cointegration Model
5%
1up
5%
1
1
.5
.5
1990
1991
5%
1992
1993
1994
1995
1990
Nup
5%
1
1
.5
.5
1990
1991
5%
1992
1993
1994
1995
1990
Ndn
1
.5
.5
1991
1992
1991
5%
1
1990
1991
1993
1994
1995
1990
1991
1up CHOWs
1992
1993
1994
1995
1994
1995
1994
1995
Nup CHOWs
1992
1993
Ndn CHOWs
1992
1993
FIGURE B-8: Exports for Canada: Predictive Accuracy of the Cointegration
Actual
Forecast
5.65
1-step
5.6
5.55
5.5
5.45
5.4
5.35
1994
1995
1996
1997
FIGURE B-9: Exports for France: Predictive Accuracy of the Cointegration Model
12.6
Actual
Forecast
1-step
12.575
12.55
12.525
12.5
12.475
12.45
12.425
1994
1995
1996
1997
FIGURE B-10: Exports for Germany: Predictive Accuracy of the Cointegration
Actual
Forecast
5.4
1-step
5.375
5.35
5.325
5.3
5.275
5.25
5.225
5.2
1994
1995
1996
1997
FIGURE B-11: Exports for Italy: Predictive Accuracy of the Cointegration Model
Actual
Forecast
11.425
1-step
11.4
11.375
11.35
11.325
11.3
11.275
11.25
11.225
11.2
1994
1995
1996
1997
FIGURE B-12: Exports for Japan: Predictive Accuracy of the Cointegration
Actual
Forecast
11.025
1-step
11
10.975
10.95
10.925
10.9
10.875
10.85
1994
1995
1996
1997
FIGURE B-13: Exports for the U.K.: Predictive Accuracy of the Cointegration
Actual
Forecast
10.725
1-step
10.7
10.675
10.65
10.625
10.6
10.575
10.55
10.525
1994
1995
1996
1997
FIGURE B-14: Exports for the U.S.: Predictive Accuracy of the Cointegration
Actual
Forecast
6.725
1-step
6.7
6.675
6.65
6.625
6.6
6.575
6.55
6.525
1994
1995
1996
FIGURE B-15: Imports for Canada: Chow Tests for the Cointegration Model
1
1up CHOWs
1
1up Imports
5%
5%
.5
.5
1990
1991
1992
1993
1994
1995
1
1990
1
Nup
1992
Nup CHOWs
5%
.5
1991
1993
1994
1995
1994
1995
1994
1995
5%
.5
1990
1
1991
Ndn
1992
1993
1994
1995
1990
1991
1992
1993
1
5%
Ndn CHOWs
.5
5%
.5
1990
1991
1992
1993
1994
1995
1990
1991
1992
1993
FIGURE B-16: Imports for France: Chow Tests for the Cointegration Model
1
1up
1
5%
.5
1up CHOWs
5%
.5
1990
1
1991
Nup
1992
1993
1994
1995
1990
1
5%
.5
1991
1992
Nup CHOWs
1993
1994
1995
1994
1995
1994
1995
5%
.5
1990
1
1991
Ndn
1992
1993
1994
1995
1990
1
5%
.5
1991
1992
Ndn CHOWs
1993
5%
.5
1990
1991
1992
1993
1994
1995
1990
1991
1992
1993
FIGURE B-17: Imports for Germany: Chow Tests for the Cointegration Model
7.5
1up
5%
5
5
2.5
2.5
1990
7.5
Nup
1995
5%
1990
7.5
5
5
2.5
2.5
1990
7.5
Ndn
1995
5%
5%
1995
Nup CHOWs
1990
5%
Ndn CHOWs
1995
7.5
5
5
2.5
2.5
1990
1up CHOWs
7.5
1995
1990
1995
5%
FIGURE B-18: Imports for Italy: Chow Tests for the Cointegration Model
5%
1
5%
1up
1up CHOWs
1
.5
.5
1990
1991
5%
1
1992
1993
1994
1995
Nup
1990
5%
1
.5
1991
1992
1993
1994
1995
1994
1995
1994
1995
Nup CHOWs
.5
1990
1991
5%
1
1992
1993
1994
1995
Ndn i
1990
5%
1
.5
1991
1992
1993
Ndn CHOWs
.5
1990
1991
1992
1993
1994
1995
1990
1991
1992
1993
FIGURE B-19: Imports for Japan: Chow Tests for the Cointegration Model
1
5%
1
1up
.5
1990
1
1991
5%
1992
1993
1994
Nup j
1995 1990
1
1991
5%
1992
1993
1994
1995
1994
1995
1994
1995
Nup CHOWs
.5
1991
5%
1992
1993
1994
Ndn
.5
1990
1up CHOWs
.5
.5
1990
1
5%
1995 1990
1
1991
5%
1992
1993
Ndn CHOWs
.5
1991
1992
1993
1994
1995 1990
1991
1992
1993
FIGURE B-20: Imports for the U.K.: Chow Tests for the Cointegration Model
1
1up
1
5%
.5
1up CHOWs
5%
.5
1990
1
1991
Nup
1992
1993
1994
1995
1990
1
5%
.5
1991
1992
Nup CHOWs
1993
1994
1995
1994
1995
1994
1995
5%
.5
1990
1
1991
Ndn
1992
1993
1994
1995
1990
1
5%
.5
1991
1992
Ndn CHOWs
1993
5%
.5
1990
1991
1992
1993
1994
1995
1990
1991
1992
1993
FIGURE B-21: Imports for the U.S.: Chow Tests for the Cointegration Model
3
1up
3
5%
2
2
1
1
1990
3
1991
Nup
1992
1993
1994
1995
1990
5%
2
1
1
1990
1991
Ndn
1992
1993
1994
1995
1990
2
1
1
1991
1992
1993
1994
1995
1992
5%
1993
Nup CHOWs
3
5%
2
1990
1991
3
2
3
1up CHOWs
1991
1992
Ndn CHOWs
1990
1991
1992
1994
1995
5%
1993
1994
1995
1994
1995
5%
1993
FIGURE B-22: Imports for Canada: Predictive Accuracy of the Cointegration
5.625
5.6
Actual
Forecast
1-step
5.575
5.55
5.525
5.5
5.475
5.45
5.425
5.4
1994
1995
1996
1997
FIGURE B-23: Imports for France: Predictive Accuracy of the Cointegration
12.575
Actual
Forecast
1-step
12.55
12.525
12.5
12.475
12.45
1994
1995
1996
1997
FIGURE B-24: Imports for Germany: Predictive Accuracy of the Cointegration
Actual
Forecast
1-step
5.375
5.35
5.325
5.3
5.275
5.25
5.225
5.2
1994
1995
1996
1997
FIGURE B-25: Imports for Italy: Predictive Accuracy of the Cointegration Model
11.225
Actual
Forecast
1-step
11.2
11.175
11.15
11.125
11.1
11.075
1994
1995
1996
1997
FIGURE B-26: Imports for Japan: Predictive Accuracy of the Cointegration
Actual
Forecast
11
1-step
10.95
10.9
10.85
10.8
10.75
10.7
1994
1995
1996
1997
FIGURE B-27: Imports for the U.K.: Predictive Accuracy of the Cointegration
Actual
Forecast
10.775
1-step
10.75
10.725
10.7
10.675
10.65
10.625
10.6
1994
1995
1996
1997
FIGURE B-28: Imports for the U.S.: Predictive Accuracy of the Cointegration
6.9
6.875
Actual
Forecast
1-step
6.85
6.825
6.8
6.775
6.75
6.725
6.7
6.675
6.65
1994
1995
1996
1997
DSSHQGL[ F= VKRUW0UXQ HODVWLFLWLHV
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pdlqwdlqhg iru hvwlpdwlrq +vhuldo lqghshqghqfh/ krprvfhgdvwlflw|/ qrupdo0
lw|, lq doo fdvhv1 Iru krprvfhgdvwlflw|/ zh xvh d w0whvw ri wkh qxoo k|srwkhvlv
wkdw wkh yduldqfh ri wkh uhvlgxdov lv frqvwdqw1 Iru qrupdolw|/ zh xvh d "5
whvw ri wkh qxoo k|srwkhvlv wkdw wkh glvwulexwlrq ri wkh uhvlgxdov lv qrupdo1
Iru ixqfwlrqdo irup/ zh xvh d uhvhw whvw ri wkh qxoo k|srwkhvlv wkdw wkh
vshflfdwlrq grhv qrw rplw frpelqdwlrqv ri wkh suhghwhuplqhg yduldeohv1
6;
FIGURE C-2: Exports for France: Chow Tests for the ECM Coefficients
1up CHOWs
5%
1
.5
1990
1991
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
1
Ndn CHOWs
.5
1990
5%
1991
1992
1
Nup CHOWs
5%
.5
1990
1991
1992
FIGURE C-3: Exports for Germany: Chow Tests for the ECM Coefficients
1.5
1up CHOWs
5%
1
.5
1991
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
1.5
Ndn CHOWs
5%
1
.5
1991
1.5
1992
Nup CHOWs
5%
1
.5
1991
1992
FIGURE C-4: Exports for Italy: Chow Tests for the ECM Coefficients
1.5
1up CHOWs
5%
1
.5
1990
1.5
1991
Ndn CHOWs
1992
1993
1994
1995
1992
1993
1994
1995
1992
1993
1994
1995
5%
1
.5
1990
1.5
1991
Nup CHOWs
5%
1
.5
1990
1991
FIGURE C-5: Exports for Japan: Chow Tests for the ECM Coefficients
1
5%
1up CHOWs
.5
1990
1
1991
5%
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
Ndn CHOWs
.5
1990
1
1991
5%
1992
Nup CHOWs
.5
1990
1991
1992
FIGURE C-6: Exports for the U.K.: Chow Tests for the ECM Coefficients
1up CHOWs
1.5
5%
1
.5
1990
1.5
1991
Ndn CHOWs
1992
1993
1994
1995
1992
1993
1994
1995
1992
1993
1994
1995
5%
1
.5
1990
1.5
1991
Nup CHOWs
5%
1
.5
1990
1991
FIGURE C-7: Exports for the U.S.: Chow Tests for the ECM Coefficients
1.5
5%
1up CHOWs
1
.5
1990
1.5
1991
5%
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
Ndn CHOWs
1
.5
1990
1.5
1991
5%
1992
Nup CHOWs
1
.5
1990
1991
1992
FIGURE C-8: Exports for Canada: Predictive Accuracy of the Error-Correction
.08
Fitted
Forecast
Actual
.06
.04
.02
0
-.02
-.04
1994
1995
1996
1997
FIGURE C-9: Exports for France: Predictive Accuracy of the Error-Correction
.05
Fitted
Forecast
Actual
.04
.03
.02
.01
0
-.01
-.02
-.03
1994
1995
1996
1997
FIGURE C-10: Exports for Germany Predictive Accuracy of the Error-Correction Model
.04
.02
0
-.02
Fitted
Forecast
Actual
-.04
-.06
1994
1995
1996
1997
FIGURE C-11: Exports for Italy: Predictive Accuracy of the Error-Correction Model
.075
Fitted
Forecast
Actual
.05
.025
0
-.025
-.05
-.075
-.1
1994
1995
1996
1997
FIGURE C-12: Exports for Japan: Predictive Accuracy of the Error-Correction Model
.06
Actual
Forecast
Fitted
.04
.02
0
-.02
-.04
1994
1995
1996
1997
FIGURE C-13: Exports for the U.K.: Predictive Accuracy of the Error-Correction Model
.03
.02
.01
0
-.01
-.02
Fitted
Forecast
Actual
-.03
-.04
-.05
1994
1995
1996
1997
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4198
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4134
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0
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31<:
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9415
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8 shufhqw ohyho1
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X1V1
5164
+3163,
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+3147,
03137
+3136,
3196
517;
3163
313;
3145
3168
9316
dw wkh
FIGURE C-15: Imports for Canada: Chow Tests for the ECM Coefficients
1
1up CHOWs
5%
.5
1990
1
1991
Ndn CHOWs
1992
1993
1994
1995
1992
1993
1994
1995
1992
1993
1994
1995
5%
.5
1990
1
1991
Nup CHOWs
5%
.5
1990
1991
FIGURE C-16: Imports for France: Chow Tests for the ECM Coefficients
1
1up CHOWs
5%
.5
1990
1
1991
Ndn CHOWs
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
5%
.5
1990
1
1991
Nup CHOWs
1992
5%
.5
1990
1991
1992
FIGURE C-17: Imports for Germany: Chow Tests for the ECM Coefficients
5%
1up CHOWs
1
.5
1990
1991
5%
1
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
Ndn CHOWs
.5
1990
1991
5%
1
1992
Nup CHOWs
.5
1990
1991
1992
FIGURE C-18: Imports for Italy: Chow Tests for the ECM Coefficients
1
1up CHOWs
5%
.5
1990
1
1991
Ndn CHOWs
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
5%
.5
1990
1
1991
Nup CHOWs
1992
5%
.5
1990
1991
1992
FIGURE C-19: Imports for Japan: Chow Tests for the ECM Coefficients
1
5%
1up CHOWs
.5
1990
1
1991
5%
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
Ndn CHOWs
.5
1990
1
1991
5%
1992
Nup CHOWs
.5
1990
1991
1992
FIGURE C-20: Imports for the U.K.: Chow Tests for the ECM Coefficients
1
5%
1up CHOWs
.5
1990
1
1991
5%
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
Ndn CHOWs
.5
1990
1
1991
5%
1992
Nup CHOWs
.5
1990
1991
1992
FIGURE C-21: Imports for the U.S.: Chow Tests for the ECM Coefficients
1
5%
1up CHOWs
.5
1990
1
1991
5%
1992
1993
1994
1995
1993
1994
1995
1993
1994
1995
Ndn CHOWs
.5
1990
1
1991
5%
1992
Nup CHOWs
.5
1990
1991
1992
FIGURE C-22: Imports for Canada: Predictive Accuracy of the Error-Correction Model
.08
Fitted
Forecast
Actual
.06
.04
.02
0
-.02
-.04
1994
1995
1996
1997
FIGURE C-23: Imports for France: Predictive Accuracy of the Error-Correction Model
.05
.04
.03
.02
.01
0
-.01
-.02
Fitted
Forecast
-.03
Actual
-.04
1994
1995
1996
1997
FIGURE C-24: Imports for Germany: Predictive Accuracy of the Error-Correction Model
.08
Fitted
Forecast
Actual
.06
.04
.02
0
-.02
-.04
-.06
1994
1995
1996
1997
FIGURE C-25: Imports for Italy: Predictive Accuracy of the Error-Correction Model
.05
.025
0
-.025
-.05
Fitted
Forecast
Actual
-.075
-.1
1994
1995
1996
1997
FIGURE C-26: Imports for Japan: Predictive Accuracy of the Error-Correction Model
.05
.025
0
-.025
-.05
Actual
Forecast
Fitted
-.075
1994
1995
1996
1997
FIGURE C-27: Imports for the U.K.: Predictive Accuracy of the Error-Correction Model
.06
.04
.02
0
-.02
-.04
Fitted
Forecast
Actual
-.06
1994
1995
1996
1997
FIGURE C-28: Imports for the U.S.: Predictive Accuracy of the Error-Correction Model
.06
.04
.02
0
-.02
Actual
Forecast
Fitted
-.04
-.06
1994
1995
1996
1997
REFERENCES
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of Japan,” Journal of International Money and Finance, 16 (June 1997),
pp. 491–512.
Cline, William R., United States External Adjustment and the World Economy,
Washington, D.C., Institute for International Economics, 1989.
Deyak, Timothy A., W. Charles Sawyer, and Richard L. Sprinkle, “An
Empirical Examination of the Structural Stability of Disaggregated U.S.
Import Demand,” Review of Economics and Statistics, 71 (May 1989),
pp. 337–341.
Goldstein, Morris, and Mohsin S. Khan, “Income and Price Effects in Foreign
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Elsevier, 1985, pp. 1041–1105.
Hendry, David F., and Jurgen Doornik, PcGive 9.0, London, International
Thomson Business Press, 1996.
Hooper, Peter, “The Stability of Income and Price Elasticities in U.S. Trade,
1975–1977,” International Finance Discussion Papers No. 119, Washington,
D.C., Board of Governors of the Federal Reserve System, June 1978.
Hooper, Peter, Karen Johnson, and Jaime Marquez, “Trade Elasticities for
G-7 Countries,” International Finance Discussion Papers No. 609, Washington, D.C., Board of Governors of the Federal Reserve System, April 1998.
Hooper, Peter, and Jaime Marquez, “Exchange Rates, Prices, and External
Adjustment in the United States and Japan,” in Peter B. Kenen, ed.,
Understanding Interdependence, Princeton N.J., Princeton University Press,
1995, pp. 107–168.
Houthakker, Hendrik S., and Stephen P. Magee, “Income and Price Elasticities in World Trade,” Review of Economics and Statistics, 51 (May 1969),
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International Monetary Fund (IMF), Direction of Trade Statistics, Yearbook
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Review of International Economics, 7 (February 1999), pp. 102–116.
55
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Stern, Robert M., Jonathan Francis, and Bruce Schumacher, Price Elasticities
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56
PUBLICATIONS OF THE
INTERNATIONAL ECONOMICS SECTION
Notice to Contributors
The International Economics Section issues papers in three series. ESSAYS IN INTERNATIONAL ECONOMICS (formerly Essays in International Finance) and PRINCETON
STUDIES IN INTERNATIONAL ECONOMICS (formerly Princeton Studies in International Finance) contain new work not published elsewhere. REPRINTS IN INTERNATIONAL ECONOMICS (formerly Reprints in International Finance) reproduce journal
articles previously published by Princeton faculty members associated with the
Section. A fourth series, SPECIAL PAPERS IN INTERNATIONAL ECONOMICS, was
discontinued in July 2000. The Section welcomes the submission of manuscripts for
publication under the following guidelines:
ESSAYS are meant to disseminate new views about international economic matters
and should be accessible to well-informed nonspecialists as well as to professional
economists. Technical terms, tables, and charts should be used sparingly; mathematics should be avoided.
STUDIES are devoted to new research in international economics, with preference
given to empirical work. They should be comparable in originality and technical
proficiency to papers published in leading economic journals. They should be of
medium length, longer than a journal article but shorter than a book.
Manuscripts should be submitted in triplicate, typed single sided and double
spaced throughout on 8½ by 11 white bond paper. Publication can be expedited if
manuscripts are computer keyboarded in WordPerfect or a compatible program.
Additional instructions and a style guide are available from the Section or on the
website at www.princeton.edu/~ies.
How to Obtain Publications
The Section’s publications are distributed free of charge to college, university, and
public libraries and to nongovernmental, nonprofit research institutions. Eligible
institutions may ask to be placed on the Section’s permanent mailing list.
Individuals and institutions not qualifying for free distribution may receive all
publications for the calendar year for a subscription fee of $45.00. Late subscribers
will receive all back issues for the year during which they subscribe.
Publications may be ordered individually, with payment made in advance. ESSAYS
and REPRINTS cost $10.00 each; STUDIES and SPECIAL PAPERS cost $13.50. An
additional $1.50 should be sent for postage and handling within the United States,
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Information about the Section and its publishing program is available at the
Section’s website at www.princeton.edu/~ies. A subscription and order form is
printed at the end of this volume. Correspondence should be addressed to:
International Economics Section
Department of Economics, Fisher Hall
Princeton University
Princeton, New Jersey 08544-1021
Tel: 609-258-4048 • Fax: 609-258-1374
E-mail: [email protected]
57
List of Recent Publications
A complete list of publications is available at the International Economics Section
website at www.princeton.edu/~ies.
ESSAYS IN INTERNATIONAL ECONOMICS
(formerly Essays in International Finance)
180. Warren L. Coats, Jr., Reinhard W. Furstenberg, and Peter Isard, The SDR
System and the Issue of Resource Transfers. (December 1990)
181. George S. Tavlas, On the International Use of Currencies: The Case of the
Deutsche Mark. (March 1991)
182. Tommaso Padoa-Schioppa, ed., with Michael Emerson, Kumiharu Shigehara,
and Richard Portes, Europe After 1992: Three Essays. (May 1991)
183. Michael Bruno, High Inflation and the Nominal Anchors of an Open Economy.
(June 1991)
184. Jacques J. Polak, The Changing Nature of IMF Conditionality. (September 1991)
185. Ethan B. Kapstein, Supervising International Banks: Origins and Implications
of the Basle Accord. (December 1991)
186. Alessandro Giustiniani, Francesco Papadia, and Daniela Porciani, Growth and
Catch-Up in Central and Eastern Europe: Macroeconomic Effects on Western
Countries. (April 1992)
187. Michele Fratianni, Jürgen von Hagen, and Christopher Waller, The Maastricht
Way to EMU. (June 1992)
188. Pierre-Richard Agénor, Parallel Currency Markets in Developing Countries:
Theory, Evidence, and Policy Implications. (November 1992)
189. Beatriz Armendariz de Aghion and John Williamson, The G-7’s Joint-and-Several
Blunder. (April 1993)
190. Paul Krugman, What Do We Need to Know About the International Monetary
System? (July 1993)
191. Peter M. Garber and Michael G. Spencer, The Dissolution of the AustroHungarian Empire: Lessons for Currency Reform. (February 1994)
192. Raymond F. Mikesell, The Bretton Woods Debates: A Memoir. (March 1994)
193. Graham Bird, Economic Assistance to Low-Income Countries: Should the Link
be Resurrected? (July 1994)
194. Lorenzo Bini-Smaghi, Tommaso Padoa-Schioppa, and Francesco Papadia, The
Transition to EMU in the Maastricht Treaty. (November 1994)
195. Ariel Buira, Reflections on the International Monetary System. (January 1995)
196. Shinji Takagi, From Recipient to Donor: Japan’s Official Aid Flows, 1945 to 1990
and Beyond. (March 1995)
197. Patrick Conway, Currency Proliferation: The Monetary Legacy of the Soviet
Union. (June 1995)
198. Barry Eichengreen, A More Perfect Union? The Logic of Economic Integration.
(June 1996)
199. Peter B. Kenen, ed., with John Arrowsmith, Paul De Grauwe, Charles A. E.
Goodhart, Daniel Gros, Luigi Spaventa, and Niels Thygesen, Making EMU
Happen—Problems and Proposals: A Symposium. (August 1996)
58
200. Peter B. Kenen, ed., with Lawrence H. Summers, William R. Cline, Barry
Eichengreen, Richard Portes, Arminio Fraga, and Morris Goldstein, From Halifax
to Lyons: What Has Been Done about Crisis Management? (October 1996)
201. Louis W. Pauly, The League of Nations and the Foreshadowing of the International Monetary Fund. (December 1996)
202. Harold James, Monetary and Fiscal Unification in Nineteenth-Century Germany:
What Can Kohl Learn from Bismarck? (March 1997)
203. Andrew Crockett, The Theory and Practice of Financial Stability. (April 1997)
204. Benjamin J. Cohen, The Financial Support Fund of the OECD: A Failed
Initiative. (June 1997)
205. Robert N. McCauley, The Euro and the Dollar. (November 1997)
206. Thomas Laubach and Adam S. Posen, Disciplined Discretion: Monetary Targeting in Germany and Switzerland. (December 1997)
207. Stanley Fischer, Richard N. Cooper, Rudiger Dornbusch, Peter M. Garber,
Carlos Massad, Jacques J. Polak, Dani Rodrik, and Savak S. Tarapore, Should
the IMF Pursue Capital-Account Convertibility? (May 1998)
208. Charles P. Kindleberger, Economic and Financial Crises and Transformations
in Sixteenth-Century Europe. (June 1998)
209. Maurice Obstfeld, EMU: Ready or Not? (July 1998)
210. Wilfred Ethier, The International Commercial System. (September 1998)
211. John Williamson and Molly Mahar, A Survey of Financial Liberalization.
(November 1998)
212. Ariel Buira, An Alternative Approach to Financial Crises. (February 1999)
213. Barry Eichengreen, Paul Masson, Miguel Savastano, and Sunil Sharma,
Transition Strategies and Nominal Anchors on the Road to Greater ExchangeRate Flexibility. (April 1999)
214. Curzio Giannini, “Enemy of None but a Common Friend of All”? An International Perspective on the Lender-of-Last-Resort Function. (June 1999)
215. Jeffrey A. Frankel, No Single Currency Regime Is Right for All Countries or at
All Times. (August 1999)
216. Jacques J. Polak, Streamlining the Financial Structure of the International
Monetary Fund. (September 1999)
217. Gustavo H. B. Franco, The Real Plan and the Exchange Rate. (April 2000)
218. Thomas D. Willett, International Financial Markets as Sources of Crises or
Discipline: The Too Much, Too Late Hypothesis. (May 2000)
219. Richard H. Clarida, G-3 Exchange-Rate Relationships: A Review of the Record
and of Proposals for Change. (August 2000)
PRINCETON STUDIES IN INTERNATIONAL ECONOMICS
(formerly Princeton Studies in International Finance)
69. Felipe Larraín and Andrés Velasco, Can Swaps Solve the Debt Crisis? Lessons
from the Chilean Experience. (November 1990)
70. Kaushik Basu, The International Debt Problem, Credit Rationing and Loan
Pushing: Theory and Experience. (October 1991)
71. Daniel Gros and Alfred Steinherr, Economic Reform in the Soviet Union: Pas de Deux
59
between Disintegration and Macroeconomic Destabilization. (November 1991)
72. George M. von Furstenberg and Joseph P. Daniels, Economic Summit Declarations, 1975-1989: Examining the Written Record of International Cooperation. (February 1992)
73. Ishac Diwan and Dani Rodrik, External Debt, Adjustment, and Burden Sharing:
A Unified Framework. (November 1992)
74. Barry Eichengreen, Should the Maastricht Treaty Be Saved? (December 1992)
75. Adam Klug, The German Buybacks, 1932-1939: A Cure for Overhang?
(November 1993)
76. Tamim Bayoumi and Barry Eichengreen, One Money or Many? Analyzing the
Prospects for Monetary Unification in Various Parts of the World. (September 1994)
77. Edward E. Leamer, The Heckscher-Ohlin Model in Theory and Practice.
(February 1995)
78. Thorvaldur Gylfason, The Macroeconomics of European Agriculture. (May 1995)
79. Angus S. Deaton and Ronald I. Miller, International Commodity Prices, Macroeconomic Performance, and Politics in Sub-Saharan Africa. (December 1995)
80. Chander Kant, Foreign Direct Investment and Capital Flight. (April 1996)
81. Gian Maria Milesi-Ferretti and Assaf Razin, Current-Account Sustainability.
(October 1996)
82. Pierre-Richard Agénor, Capital-Market Imperfections and the Macroeconomic
Dynamics of Small Indebted Economies. (June 1997)
83. Michael Bowe and James W. Dean, Has the Market Solved the Sovereign-Debt
Crisis? (August 1997)
84. Willem H. Buiter, Giancarlo M. Corsetti, and Paolo A. Pesenti, Interpreting the
ERM Crisis: Country-Specific and Systemic Issues. (March 1998)
85. Holger C. Wolf, Transition Strategies: Choices and Outcomes. (June 1999)
86. Alessandro Prati and Garry J. Schinasi, Financial Stability in European Economic
and Monetary Union. (August 1999)
87. Peter Hooper, Karen Johnson, and Jaime Marquez, Trade Elasticities for the
G-7 Countries. (August 2000)
SPECIAL PAPERS IN INTERNATIONAL ECONOMICS
17. Richard Pomfret, International Trade Policy with Imperfect Competition. (August 1992)
18. Hali J. Edison, The Effectiveness of Central-Bank Intervention: A Survey of the
Literature After 1982. (July 1993)
19. Sylvester W.C. Eijffinger and Jakob De Haan, The Political Economy of CentralBank Independence. (May 1996)
20. Olivier Jeanne, Currency Crises: A Perspective on Recent Theoretical Developments. (March 2000)
REPRINTS IN INTERNATIONAL ECONOMICS
(formerly Reprints in International Finance)
29. Peter B. Kenen, Sorting Out Some EMU Issues; reprinted from Jean Monnet Chair
Paper 38, Robert Schuman Centre, European University Institute, 1996.
(December 1996)
60
The work of the International Economics Section is supported
in part by the income of the Walker Foundation, established
in memory of James Theodore Walker, Class of 1927. The
offices of the Section, in Fisher Hall, were provided by a
generous grant from Merrill Lynch & Company.
ISBN 0-88165-259-8
Recycled Paper