Spectral estimation of secular and cyclical elasticities for bilateral trade

The paper uses spectral methods to estimate income and price elasticities for trade among Canada, Germany, Japan, the United Kingdom, the United States, other industrial countries, OPEC, and non-OPEC developing countries. By focusing on bilateral trade data, the paper avoids the aggregation biases associated with multilateral data. By differentiating between secular and cyclical elasticities, the paper recognizes that trade responses to secular expansions and to domestic bottlenecks need not be the same. Finally, by relying on spectral analysis, the paper isolates the secular and cyclical components of the data and thus avoids the drawbacks of time-domain analyses where a time trendproxies secular factors. To emphasize the usefulness of bilateral trade elasticities, the analysis re-examines the asymmetry in income elasticities noted by Houthakker and Magee and evaluates the loss of information associated with relying on multilateral trade data.