Forecasting World Trade

As economies become more open to international trade, also the transmission and propagation of economic fluctuations increases. In particular small and open economies are strongly exposed to fluctuations in the global business cycle. Hence, the cyclical dynamics of international trade have implications in macroeconomic forecasting and international politics. The analysis on income and growth shows that global trade is an important factor for sustainable development. This was the motivation to find an econometric model that is capable to track the growth path of world trade. Several univariate processes and multivariate systems have been tested for their fitness. The selected determinants of multivariate systems are based on theory, which suggests that investment activities and monetary policy influence the development of the global business cycle. The oil price and other raw material prices also play a key role in the economic development. The econometric analysis illustrates the close relationship of these determinants. While autoregessive processes are sufficient in short-term forecasting, multivariate systems are superior in forecasting longer time horizons.