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International Trade and Intertemporal Substitution

Fernando Leibovici () and Michael Waugh

No 2017-4, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper quantitatively investigates the extent to which variation in the intertemporal marginal rate of substitution can help account for puzzling features of cyclical fluctuations of international trade volumes. Our insight is that, because international trade is time-intensive, variation in the rate at which agents are willing to substitute across time affects how trade volumes respond to changes in output and prices. We use a standard small open economy model with time-intensive international trade, calibrated to match key features of U.S. data and disciplining the variation in the intertemporal marginal rate of substitution using asset price data. We find that variation in the intertemporal marginal rate of substitution helps rationalize puzzling features of import fluctuations and that this mechanism is quantitatively important during both normal and crisis times.

Keywords: International trade; trade elasticity; dynamics; international; business cycles (search for similar items in EconPapers)
JEL-codes: E3 F1 F41 (search for similar items in EconPapers)
Date: 2016-06-01, Revised 2018-10-31
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
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Related works:
Journal Article: International trade and intertemporal substitution (2019) Downloads
Working Paper: International Trade and Intertemporal Substitution (2014) Downloads
Working Paper: International Trade and Intertemporal Substitution (2014) Downloads
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DOI: 10.20955/wp.2017.004

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