{
  "title": "Are Bilateral Trade Balances Irrelevant?",
  "publication": "IMF Working Papers, September 25, 2020",
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  "summary": "Based on an empirical gravity model of sectoral bilateral trade, we uncover three features of bilateral trade balances. First, the difficulty of gravity models in fitting the observed level of bilateral balances is likely due to the presence of unobservable bilateral trade costs.",
  "authors": [
    "Margaux MacDonald",
    "Roberto Piazza",
    "Johannes Eugster",
    "Florence Jaumotte"
  ],
  "publishDate": "2020-09-25",
  "series": "IMF Working Papers",
  "sections": [
    {
      "heading": "Summary and key findings",
      "content": "- Based on an empirical gravity model of sectoral bilateral trade, the paper uncovers three features of bilateral trade balances:\n  - The difficulty of gravity models in fitting the observed level of bilateral balances is likely due to the presence of unobservable bilateral trade costs.\n  - The model fit improves drastically when focusing on changes over time of the balances.\n  - Using a log linear approximation, changes in bilateral trade balances over the past two decades were driven almost entirely by changes in the same macro factors that determine countries’ aggregate balances; changes in bilateral trade costs, including tariffs, played therefore only a negligible role.\n- Conclusion: This provides new support for the view that bilateral balances are, for practical purposes, not relevant to the conduct of macroeconomic policy."
    },
    {
      "heading": "Methodology and analytical approach",
      "content": "- Empirical framework: gravity model of sectoral bilateral trade.\n- Analytical technique: log linear approximation to decompose drivers of changes in bilateral trade balances.\n- Focus: both levels of bilateral balances and changes over time; improved explanatory power when analyzing temporal changes."
    },
    {
      "heading": "Policy implications and interpretation",
      "content": "- Bilateral trade costs (including tariffs) had a negligible role in driving changes in bilateral trade balances over the past two decades relative to macro factors that determine aggregate balances.\n- Practical implication: Bilateral balances are not relevant to the conduct of macroeconomic policy, supporting policy focus on aggregate determinants rather than bilateral positions.\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2020/09/25/are-bilateral-trade-balances-irrelevant-49736"
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    "Authors: Margaux MacDonald, Roberto Piazza, Johannes Eugster, Florence Jaumotte",
    "Published: September 25, 2020",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781513557793.001",
    "Based on an empirical gravity model of sectoral bilateral trade, the paper uncovers three features of bilateral trade balances:",
    "Conclusion: This provides new support for the view that bilateral balances are, for practical purposes, not relevant to the conduct of macroeconomic policy.",
    "Empirical framework: gravity model of sectoral bilateral trade.",
    "Analytical technique: log linear approximation to decompose drivers of changes in bilateral trade balances.",
    "Focus: both levels of bilateral balances and changes over time; improved explanatory power when analyzing temporal changes.",
    "Bilateral trade costs (including tariffs) had a negligible role in driving changes in bilateral trade balances over the past two decades relative to macro factors that determine aggregate balances.",
    "Practical implication: Bilateral balances are not relevant to the conduct of macroeconomic policy, supporting policy focus on aggregate determinants rather than bilateral positions.",
    "**Working Paper**"
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