On the connection between intra-temporal and intertemporal trade
AbstractSticky (or slow-adjusting) current accounts are observed for many countries. This paper explores the role of domestic factor market flexibility in understanding the phenomenon. To do so, we consider multiple tradable sectors with different factor intensities and allow substitution between intertemporal trade (current account adjustment) and intra-temporal trade (goods trade) in a dynamic general equilibrium model. An economy’s response to a shock generally involves a combination of a change in the composition of goods trade and a change in the current account. Flexible factor markets reduce the need for the current account to adjust. On the other hand, the more rigid the factor markets, the larger the size of current account adjustment relative to the volume of goods trade, and the slower the speed of adjustment of the current account towards its long-run equilibrium. We present empirical evidence in support of the theory.
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Bibliographic InfoPaper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 8838.
Date of creation: Feb 2012
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Other versions of this item:
- Jiandong Ju & Kang Shi & Shang-Jin Wei, 2013. "On the Connections between Intra-temporal and Intertemporal Trades," NBER Chapters, in: NBER International Seminar on Macroeconomics 2013, pages 36-51 National Bureau of Economic Research, Inc.
- F3 - International Economics - - International Finance
- F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
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- Ju, Jiandong & Shi , Kang & Wei , Shang-Jin, 2013. "Trade reforms and current account imbalances," BOFIT Discussion Papers 25/2013, Bank of Finland, Institute for Economies in Transition.
- Shi, Kang, 2011.
"Sectoral labor adjustment and monetary policy in a small open economy,"
Journal of Macroeconomics, Elsevier,
Elsevier, vol. 33(4), pages 634-643.
- Kang Shi, 2011. "Sectoral Labor Adjustment and Monetary Policy in a Small Open Economy," Working Papers 302011, Hong Kong Institute for Monetary Research.
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