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International Monetary Fund. European Dept.

complement the published measures with the estimates provided by Berden et al. ( 2009 , 2013 ). The authors calculated tariffs equivalent of non-tariff barriers between the U.S.A. and the EU trade, using econometric techniques and business survey. Trade elasticities ( Figure 6 ) for agriculture and manufacturing sectors are from Caliendo and Parro (2015) as their estimation procedure is consistent with all quantitative trade models satisfying the sector-level gravity equations, while trade elasticity for service sectors is simply held equal to the aggregate trade

Mr. Jahangir Aziz and Ms. Xiangming Li

Trade 8. Rising Domestic Input in Processing Exports 9. Regional Trade Balance 10. Aggregate Trade Elasticity 11. Recursive Estimates 12. CUSUM Test 13. Sectoral Trade Elasticities 14. Weighted Trade Elasticities 15. Change in Trade Shares, 1995–2006 16. Average Rolling Sectoral Elasticities Weighted by 2000 Trade 17. Export Elasticity to Real Exchange Rate by Processing and Nonprocessing Trade Tables 1. Sectoral Composition of Processing Exports 2. Aggregate Trade Elasticity 3. Chow Test of Breakpoint at 1999/Q4 4. Impact of Domestic

Mr. Daniel Leigh, Weicheng Lian, Mr. Marcos Poplawski Ribeiro, Rachel Szymanski, Viktor Tsyrennikov, and Hong Yang

Front Matter Page Research Department Contents Abstract I. Introduction II. Estimating Aggregate Trade Elasticities A. Data B. Empirical Strategy C. Individual Economy Estimations D. Disconnect or Stability over Time? III. Analysis of Large Currency Depreciation Episodes A. Methodology B. What Happens to Exports after a Large Exchange Rate Depreciation? C. Large Depreciations and Disconnect D. The Role of Initial Conditions IV. SECTOR-LEVEL ANALYSIS A. Data B. Sector-Level Estimations C. Results V

Mr. Jahangir Aziz and Ms. Xiangming Li
China's sectoral trade composition, product quality mix, and import content of processing exports have all changed substantially during the past decade. This has rendered trade elasticities estimated using aggregate data highly unstable, with more recent data pointing to significantly higher demand and price elasticities. Sectoral differences in these parameters are also very wide. All this suggests greater caution in using historical data to simulate the response of the China's economy to external shocks and exchange rate changes. Analyses based on models whose estimated coefficients largely reflect the China of the 1980s and 1990s are likely to turn out to be wrong, perhaps even dramatically.
Mr. Jahangir Aziz and Ms. Xiangming Li

Krolzig (2005) was used to eliminate insignificant leads and lags, as well as seasonal dummies. B. Empirical Results Using Aggregate Data Trade elasticities for the aggregate exports and Table 2 . It shows that export elasticity to foreign demand is 3.8, and to relative price is −1.6, while import elasticity to domestic relative price is 0.9. These Table 2. Aggregate Trade Elasticity 1/ Dependent Variable Total Exports Dependent Variable Total Imports Variables Coefficient Standard deviation 2/ Variables Coefficient

Mr. Daniel Leigh, Weicheng Lian, Mr. Marcos Poplawski Ribeiro, Rachel Szymanski, Viktor Tsyrennikov, and Hong Yang
We examine the stability and strength of the relationship between exchange rates and trade over time using three alternative approaches, mitigating the endogeneity of the relation. We find that both exchange rate pass-through and the price elasticity of trade volumes are largely stable over time. Economic slack and financial conditions affect the relationship, but there is limited evidence that participation in global value chains has significantly changed the exchange rate–trade relationship over time.
Mr. Daniel Leigh, Weicheng Lian, Mr. Marcos Poplawski Ribeiro, Rachel Szymanski, Viktor Tsyrennikov, and Hong Yang

of this paper is structured as follows. Section II describes our estimates of trade elasticities at the macroeconomic level. Section III investigates large currency depreciation episodes, and Section IV performs the analysis based on sectoral data. Section V concludes and discusses the main policy implications of our findings. II. Estimating Aggregate Trade Elasticities This section estimates aggregate trade elasticities: the relationship between exchange rate movements and relative export and import prices (exchange rate pass-through), and that

International Monetary Fund. Research Dept.

—trade elasticities in the extended framework are country specific. If production is less responsive to price changes than is final demand, 7 countries that are more involved in global value chains (for example, China), and hence trade more in intermediate inputs, will in the aggregate exhibit lower trade elasticities than countries that trade more in final consumption goods (for example, the United States). In the latter case, the more price-sensitive final demand is weighted more heavily in the aggregate trade elasticity. One implication is that with country-specific aggregate

Alejandro Cuñat and Robert Zymek

the aggregate trade elasticity; and { ε ^ s n ′ n } s , n ′ , n are the residuals from the estimation described in Section 2.1.3. The larger is In (τ n ’ n /τ nn ’) , the more difficult it is to sell goods and services from n’ in n relative to selling goods and services from n in n’. Equation (32) is a natural measure of aggregate trade-wedge asymmetries in the context of our analysis because — up to the value of θ — it corresponds to the contribution of these asymmetries in our approximate decomposition of bilateral imbalances in (6). We choose θ = 4

Mr. Alberto Behar and Benjamin D. Nelson
We present a gravity model that accounts for multilateral resistance, firm heterogeneity and country-selection into trade, while accommodating asymmetries in trade flows. A new equation for the proportion of exporting firms takes a gravity form, such that the extensive margin is also affected by multilateral resistance. We develop Taylor approximated multilateral resistance terms with which to capture the comparative static effects of changes in trade costs. For isolated bilateral changes in trade frictions, multilateral resistance effects are small for most countries. However, if all countries reduce their trade frictions, the impact of multilateral resistance is so strong that bilateral trade falls in most cases, despite the larger trade elasticities implied by firm heterogeneity. As a consequence, the world-wide trade response, though positive, is much lower.