The Russian market closed for a considerable part of Western economies. Moscow in turn has blocked trade relations with the United States and Europe, with the exception of the mega energy sector. China is grappling with the resurgence of the pandemic and is forced into partial lockdowns that slow down the supply chains of many strategic manufacturing productions. A chaos on world trade that would need an order, at least statistical, to extract indications “about tomorrow” of the economy international.
From Ca' Foscari in Venice comes a predictive model which relates the effects of sanctions, tariffs and conflicts on global trade. The studio conducted by Venetian economists, the Vrije University of Amsterdam and the Gerzensee Study Center of the Foundation of the Swiss Central Bank was published in the Journal of Business and Economic Statistics, prestigious journal of the American Statistical Association.
The model is able to predict the possible global and local, temporary and persistent effects deriving from sudden reorganizations of commercial exchanges. Because while it is true that many signs of a freeze in globalization have been visible for some time, world trade is still incredibly interconnected.
During the pandemic, researchers from half the world tried to put together the billions of data and correlations that accumulated week after week, in the purely financial field, economists try to build models capable of putting order in the gigantic mass of inputs and outputs that global trade produces every day. The tricky thing is to do it after (or during) a war, after a sudden shock or major political instability event. The study will also serve to give reliable indications to governments and central banks dealing with unexpected changes in macroeconomic scenarios.
The Economist Robert Casarin, professor of Econometrics at Ca' Foscari and co-author of the study, explains the possible uses of this study for economic operators and public decision makers. “The response to shocks is rapid, commercial and financial exchanges soon find a new arrangement. Our model manages to deliver some short-term scenarios useful for making political decisions. Now the fruit of our work is available to everyone, not only as an interdisciplinary methodological contribution, but also as a package for Matlab, one of the reference software for mathematical applications". According to the authors, it will be possible to simulate the effects of certain political choices on commercial and financial exchanges with ever greater precision, but also to intervene to correct the effects of a natural reorganization of exchanges.
“We needed a model that took into account the original structure of the data, therefore a four-dimensional matrix called a tensor and a statistical inference procedure that was able to manage the resulting amount of data. We succeeded by extending some recent research results in the field of numerical analysis and mechanical engineering concerning new multilinear algebra tools”.
The scientific work, the result of all the latest mathematical discoveries linked to econometrics, combined the monthly observations of trade and financial flows between the economies being analyzed for five years. One of the case studies involved the 1% reduction in US imports, an event capable of generating immediate consequences and impacts that differ from country to country. Switzerland would be the most favored, with increases in both exports and imports. On the other hand, Danish exports to Switzerland, Germany and France would decrease, economies which in turn import more from the United States, Japan and Ireland. After the initial shock, US imports would still rebound positively.
