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Import demand and supply with relatively few theoretical or empirical puzzles

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  • Andrew M. Warner

Abstract

This paper documents that a textbook, supply and demand, simultaneous equations model of import prices and quantities can explain many aspects of import price and quantity behavior over the past 25 years, appears to forecast better than standard trade equations, and the instruments we use appear to be valid instruments. On the negative side, although the demand equation and the two reduced form equations satisfy nominal homogeneity restrictions, the supply equation does not. One possible explanation for this is that foreign suppliers do not believe that exchange rate shocks have the same permanence as price or wage shocks. Overall, however, the findings reported in this paper show that a classical simultaneous equations model can explain the behavior of non-oil import prices and quantities fairly successfully.

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File URL: http://www.federalreserve.gov/pubs/ifdp/1992/433/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/1992/433/ifdp433.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 433.

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Date of creation: 1992
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Handle: RePEc:fip:fedgif:433

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Keywords: Imports ; International trade;

References

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  1. Gagnon, Joseph E., 1989. "Adjustment costs and international trade dynamics," Journal of International Economics, Elsevier, vol. 26(3-4), pages 327-344, May.
  2. Richard Baldwin, 1988. "Hysteresis In Import Prices: The Beachhead Effect," NBER Working Papers 2545, National Bureau of Economic Research, Inc.
  3. Marston, Richard C., 1990. "Pricing to market in Japanese manufacturing," Journal of International Economics, Elsevier, vol. 29(3-4), pages 217-236, November.
  4. Catherine L. Mann, 1986. "Prices, profit margins, and exchange rates," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jun, pages 366-379.
  5. Goldstein, Morris & Khan, Mohsin S, 1978. "The Supply and Demand for Exports: A Simultaneous Approach," The Review of Economics and Statistics, MIT Press, vol. 60(2), pages 275-86, May.
  6. James G. MacKinnon, 2010. "Critical Values for Cointegration Tests," Working Papers 1227, Queen's University, Department of Economics.
  7. Haynes, Stephen E & Stone, Joe A, 1983. "Specification of Supply Behavior in International Trade," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 626-32, November.
  8. Jaime Marquez, 1992. "The autonomy of trade elasticities: choice and consequences," International Finance Discussion Papers 422, Board of Governors of the Federal Reserve System (U.S.).
  9. Kremers, Jeroen J M & Ericsson, Neil R & Dolado, Juan J, 1992. "The Power of Cointegration Tests," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(3), pages 325-48, August.
  10. Ellen E. Meade, 1991. "Computers and the Trade Deficit: The Case of the Falling Prices," NBER Chapters, in: International Economic Transactions: Issues in Measurement and Empirical Research, pages 61-88 National Bureau of Economic Research, Inc.
  11. Burda, Michael C & Gerlach, Stefan, 1992. "Intertemporal Prices and the U.S. Trade Balance," American Economic Review, American Economic Association, vol. 82(5), pages 1234-53, December.
  12. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
  13. Khan, Mohsm S. & Ross, Knud Z., 1977. "The functional form of the aggregate import demand equation," Journal of International Economics, Elsevier, vol. 7(2), pages 149-160, May.
  14. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  15. Peter Hooper & Catherine L. Mann, 1989. "Exchange Rate Pass-through in the 1980s: The Case of U.S. Imports of Manufactures," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 20(1), pages 297-337.
  16. Joseph E. Gagnon & Michael M. Knetter, 1990. "Pricing to market in international trade: evidence from panel data on automobiles and total merchandise," International Finance Discussion Papers 389, Board of Governors of the Federal Reserve System (U.S.).
  17. Ueda, Kazuo, 1983. "Trade Balance Adjustment with Imported Intermediate Goods: The Japanese Case," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 618-25, November.
  18. Andrew M. Warner, 1992. "Does world investment demand determine U.S. exports?," International Finance Discussion Papers 423, Board of Governors of the Federal Reserve System (U.S.).
  19. Grossman, Gene M, 1982. "Import Competition from Developed and Developing Countries," The Review of Economics and Statistics, MIT Press, vol. 64(2), pages 271-81, May.
  20. Paul R. Krugman & Richard E. Baldwin, 1987. "The Persistence of the U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1), pages 1-56.
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