In recent years, demand for U.S. exports has been soft, dragging down U.S. economic growth. Some of the reduced demand for U.S. exports can be attributed to changes in foreign income levels and the value of the dollar. But another, less obvious factor influencing the demand for U.S. goods is uncertainty about foreign growth and financial volatility. Sly constructs a measure of uncertainty for U.S. trading partners and estimates how changes in foreign uncertainty influence foreign demand for U.S. exports. He finds that periods of greater uncertainty and financial volatility are associated with substantially lower demand for U.S. goods. Moreover, he finds that changes in uncertainty and volatility have been relatively more important determinants of U.S. exports in recent years. The results suggest that if foreign growth expectations stabilize—even if they remain relatively weak—U.S. export activity will likely increase.
Global Uncertainty and U.S. Exports
Economic Review 2016, Quarter 2