Understanding the Link Between Uncertainty and Imports by glmnet

According to the graph below, suggested by Fernando Leibovici, the increase in uncertainty that began in late 2024 aligns with a rise in imports, indicating that US importers accelerated their purchases as a precaution against expected tariff increases or supply chain disruptions.

When we model the variables with the glmnet engine, we can see that this impact is limited and negative. This could confirm the thought that Fernando Leibovici suggested that this alignment is mostly due to gold imports.

Source code:

library(tidyverse)
library(tidymodels)
library(tidyquant)
library(timetk)

#Imports of Goods and Services: Balance of Payments Basis (BOPTIMP)
df_imports <- 
  tq_get("BOPTIMP", get = "economic.data") %>% 
  select(date = observation_date, imports = BOPTIMP)

#Economic Policy Uncertainty Index: Categorical Index: Trade policy (EPUTRADE)
df_uncertainty <- 
  tq_get("EPUTRADE", get = "economic.data") %>% 
  select(date = observation_date, uncertainty = EPUTRADE)

#Merging the datasets
df_merged <- 
  df_imports %>% 
  left_join(df_uncertainty) %>% 
  drop_na()

df_merged %>% 
  plot_acf_diagnostics(date,
                       imports,
                       .ccf_vars = "uncertainty")

#Correlation
df_merged %>% 
  filter(date >= first(date) - months(3)) %>% 
  tq_performance(Ra = imports, 
                 Rb = uncertainty, 
                 performance_fun = table.Correlation)


#Data split
splits <- initial_time_split(df_merged, prop = 0.8)
df_train <- training(splits)
df_test <- testing(splits)

#Bootstrapping for tuning
set.seed(12345)
df_folds <- bootstraps(df_train,
                       times = 100)


#Recipe Preprocessing Specification
rec_spec <- 
  recipe(imports ~ ., data = training(splits)) %>%
  step_fourier(date, period = 30, K = 1) %>%
  step_date(date, features = c("month", "year")) %>% 
  step_rm(date) %>% 
  step_dummy(all_nominal_predictors(), one_hot = TRUE) %>% 
  step_normalize(all_numeric_predictors())

  

#Model Specification
model_spec <- 
  linear_reg(
  mode = "regression", 
  penalty = tune()
) %>%
  set_engine("glmnet")


#Workflow sets
wflow_ <- 
  workflow_set(
    preproc = list(recipe = rec_spec),
    models = list(model = model_spec)
  ) 


#Tuning and evaluating all the models
grid_ctrl <-
  control_grid(
    save_pred = TRUE,
    parallel_over = "everything",
    save_workflow = TRUE
  )

grid_results <-
  wflow_ %>%
  workflow_map(
    seed = 98765,
    resamples = df_folds,
    grid = 10,
    control = grid_ctrl
  )

#Accuracy of the grid results
grid_results %>% 
  rank_results(select_best = TRUE, 
               rank_metric = "rsq") %>%
  select(Models = wflow_id, .metric, mean)

# A tibble: 2 × 3
#Models         .metric      mean
#  <chr>        <chr>       <dbl>
#1 recipe_model rmse    18389.   
#2 recipe_model rsq         0.804


#Finalizing the model with the best parameters
best_param <- 
  grid_results %>%
  extract_workflow_set_result("recipe_model") %>% 
  select_best(metric = "rsq")


wflw_fit <- 
  grid_results %>% 
  extract_workflow("recipe_model") %>% 
  finalize_workflow(best_param) %>% 
  fit(df_train)

#Variable importance
library(DALEXtra)

#Processed data frame for variable importance calculation
imp_data <- 
  rec_spec %>% 
  prep() %>% 
  bake(new_data = NULL) 

#Explainer object
explainer_ <- 
  explain_tidymodels(
    wflw_fit %>% extract_fit_parsnip(), 
    data = imp_data %>% select(-imports), 
    y = imp_data$imports,
    label = "",
    verbose = FALSE
  )

#Model Studio
library(modelStudio)
set.seed(1983)
modelStudio::modelStudio(explainer_,
                         B = 100,
                         viewer = "browser")

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