A Bayesian Vector Autoregression Model to Estimate Bilateral Trade Flows in Panel Data Setting
Year: 2025
Type: article
Abstract: This study examines how trade shocks that start in one large economy ripple through other countries and how long those effects stick around. Using quarterly bilateral-trade data for 2012-2023, the authors estimate a Bayesian four-country VAR model (China, Germany, Japan, United States) identified by sign restrictions. Impulse-response functions show that a one-standard-deviation drop in Chinese exports cuts German and Japanese exports by about three percent on impact, whereas German shocks are one-third as large, Japanese shocks quickly rebound, and U.S. shocks barely travel abroad. Forecast-error variance decomposition at a ten-quarter horizon confirms China’s central role: its shocks explain roughly one-third of the medium-run export volatility in Germany and Japan, while 90 percent of U.S. volatility remains home-grown. Persistence analysis finds that own shocks in China, Germany, and Japan stay near full strength for five years, whereas U.S. shocks fade faster.
Source: Modern Economy
Authors: Prabuddha Sanyal, Mark Ehlen
Language: English
Topic: Global trade and economics
Domain: Social Sciences
Open Access status: diamond
OpenAlex ID: W4412647988