A note on measures of aggregate demand adjusted for import intensity
摘要
Bussière et al. (2013) propose a new measure of aggregate demand adjusted for the import intensity of the demand components, which, according to the authors, fares considerably better than standard measures in import equations. The innovation was well received by the profession, as the new measure has been employed in several trade analyses. This note explores some properties of the proposed measure, in particular regarding the weighing scheme used for the demand components, showing that the normalisation of weights creates logical inconsistencies. Using the data provided by the authors, the note replicates the empirical model with the authors’ measure, compares it with two simpler alternatives, and finds that, for this panel dataset, the suggested alternatives perform marginally better. More specifically, the exercise shows that simply adding exports—given their high import content—to domestic demand may perform as well as more complex import intensity adjustments.