Trade elasticity of substitution and equilibrium dynamics

Martin Bodenstein

No 934, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The empirical literature provides a wide range of estimates for trade elasticities at the aggregate level. Furthermore, recent contributions in international macroeconomics suggest that low (implied) values of the trade elasticity of substitution may play an important role in understanding the disconnect between international prices and real variables. However, a standard model of the international business cycle displays multiple locally isolated equilibria if the trade elasticity of substitution is sufficiently low. The main contribution of this paper is to compute and characterize some dynamic properties of these equilibria. While multiple steady states clearly signal equilibrium multiplicity in the dynamic setup, this is not a necessary condition. Solutions based on log-linearization around a deterministic steady state are of limited to no help in computing the true dynamics. However, the log-linear solution can hint at the presence of multiple dynamic equilibria.

Keywords: Business cycles; Equilibrium (Economics) (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-dge, nep-int and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2008/934/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/2008/934/ifdp934.pdf (application/pdf)

Related works:
Journal Article: Trade elasticity of substitution and equilibrium dynamics (2010)
Working Paper: Trade Elasticity of Substitution and Equilibrium Dynamics (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgif:934

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier (ryan.d.wolfslayer@frb.gov).