In this project, the authors propose new approaches to investigate the impact of international trade and trade imbalances on international financial markets.

Economic theory predicts that the trade imbalance, the deficit of a country’s current account, affects the country’s currency depreciation in face of a large shock. This research project proposes a new trade imbalance network to explore the link between network centrality and currency risk premia. It will also examine whether the trade network is a channel for transmission of shocks to the term structure of interest rates. It establishes trade sub-networks investigating how changes in expected short-rate and the interest rate term premium can be transmitted among exporting and importing countries.

Existing research finds that industries which are more central in the US input-output network are more exposed to systematic risk and hence earn higher returns. Does the same line of argument apply in the cross-country context? The authors propose a measure of “global centrality” and examine its explanatory power for equity returns. Lastly, they analyze how oil price shocks propagate through the international trade network and affect stock markets across countries.

Project time



The Jan Wallander and Tom Hedelius foundation, and the Tore Browaldh foundation (SEK 1.5 million)


Ai Jun Hou, Caihong Xu Lu Liu, Michal Dzielinski, Xiaoxia Ye (University of Liverpool), and Weiming Wang (City University of London).


Ai Jun Hou