Abstract
AbstractWe use a dynamic factor model with time‐varying parameters and stochastic volatility to decompose the variance of exports and imports over time for 22 Organization for Economic Co‐operation and Development countries spanning the quarterly period of 1960:01–2016:04 into contributions from country‐ and region‐specific uncertainties and uncertainty common to all countries. We find that, while idiosyncratic uncertainty has a dominant role in explaining the volatility of international trade, global, country‐, and region‐specific uncertainties drive around 40% of the volatility of real exports and imports, with the impact of the latter three uncertainties rising in explanatory power during episodes of crises. Our results have important policy implications.
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