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Adjustment costs and international trade dynamics

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  • Gagnon, Joseph E.

Abstract

This paper develops a model of trader behavior that is characterized by quadra is adjustment costs, imperfect competition, and rational expectations. The model is fitted to data on aggregate trade flows between the United States and three of its largest trading partners. Tests against alternative specifications confirm the importance of imperfect competition and adjustment costs. The hypothesis of rational expectations cannot be rejected. The estimated price elasticities of trade flows are generally in the range reported by previous researchers, but the activity elasticities are significantly higher.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 26 (1989)
Issue (Month): 3-4 (May)
Pages: 327-344

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Handle: RePEc:eee:inecon:v:26:y:1989:i:3-4:p:327-344

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Jacques R. Artus & John H. Young, 1979. "Fixed and Flexible Exchange Rates: A Renewal of the Debate (Taux de change fixes et taux de change flexibles: reprise du débat) (Tipos de cambio fijos y tipos de cambio flexibles: Reanudación de," IMF Staff Papers, Palgrave Macmillan, vol. 26(4), pages 654-698, December.
  2. Kravis, Irving B. & Lipsey, Robert E., 1978. "Price behavior in the light of balance of payments theories," Journal of International Economics, Elsevier, vol. 8(2), pages 193-246, May.
  3. Sargent, Thomas J, 1978. "Estimation of Dynamic Labor Demand Schedules under Rational Expectations," Journal of Political Economy, University of Chicago Press, vol. 86(6), pages 1009-44, December.
  4. Kollintzas, Tryphon E. & Husted, Steven L., 1984. "Distributed lags and intermediate good imports," Journal of Economic Dynamics and Control, Elsevier, vol. 8(3), pages 303-327, December.
  5. Stephen P. Magee, 1973. "Currency Contracts, Pass-Through, and Devaluation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 4(1), pages 303-325.
  6. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
  7. Hansen, Lars Peter & Sargent, Thomas J., 1980. "Formulating and estimating dynamic linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 2(1), pages 7-46, May.
  8. Edison, Hali J. & Marquez, Jaime R. & Tryon, Ralph W., 1987. "The structure and properties of the Federal Reserve Board Multicountry Model," Economic Modelling, Elsevier, vol. 4(2), pages 115-315, April.
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