ε-ces preferences and trade

Kristian Behrens, Sergey Kichko and Filipp Ushchev

ULB Institutional Repository from ULB -- Universite Libre de Bruxelles

Abstract: Abstract Kimball preferences possess properties that make them a powerful tool for multi-sector applied general equilibrium. While they are homothetic, they also can be made arbitrarily close to constant elasticity of substitution (ces) preferences, thereby sharing some of their properties ‘by continuity'. We develop a trade model which brings together traded and nontraded sectors, variable markups, and costly trade for this rich class of homothetic preferences. We characterize the consequences—for both sectors—of trade liberalization in traded sector. Numerical simulations for a calibrated version of the model reveal that the elasticity of utility with respect to trade costs is about 25%–27%, depending on whether traded and nontrade goods are complements or substitutes.

Keywords: Kimball preferences; monopolistic competition; trade liberalization; variable markups (search for similar items in EconPapers)
Date: 2024-01-01
New Economics Papers: this item is included in nep-int and nep-upt
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Published in: Review of international economics (2024) v.32 n° 4,p.1567-1586

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Journal Article: ε‐ces preferences and trade (2024)
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