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International Trade and Intertemporal Substitution

Fernando Leibovici () and Michael Waugh

No 20498, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper studies the dynamics of international trade flows at business cycle frequencies. We show that introducing dynamic considerations into an otherwise standard model of trade can account for several puzzling features of trade flows at business cycle frequencies. 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 formalize this idea and calibrate our model to match key features of U.S. data. We find that, in contrast to standard static models of international trade, our model is quantitatively consistent with salient features of U.S. cyclical import fluctuations. We also find that our model accounts for two-thirds of the peak-to-trough decline in imports during the 2008-2009 recession.

JEL-codes: E0 F0 F1 F4 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
Note: EFG IFM ITI
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Published as Fernando Leibovici & Michael E. Waugh, 2017. "International Trade and Intertemporal Substitution," Federal Reserve Bank of St. Louis, Working Papers, vol 2017(004).
Published as Leibovici, Fernando & Waugh, Michael E., 2019. "International trade and intertemporal substitution," Journal of International Economics, Elsevier, vol. 117(C), pages 158-174.
Published as Fernando Leibovici & Michael E. Waugh, 2019. "International trade and intertemporal substitution," Journal of International Economics, vol 117, pages 158-174.

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Related works:
Journal Article: International trade and intertemporal substitution (2019) Downloads
Working Paper: International Trade and Intertemporal Substitution (2018) Downloads
Working Paper: International Trade and Intertemporal Substitution (2014) Downloads
Working Paper: Cyclical Fluctuations in International Trade Volumes (2010) Downloads
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