Advanced Search
MyIDEAS: Login

The constancy of illusions or the illusion of constancies: income and price elasticities for U.S. imports, 1890-1992

Contents:

Author Info

  • Jaime Marquez
Registered author(s):

    Abstract

    Virtually all we know about the behavior of U.S. imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of U.S. trade cannot avoid asking whether the postwar period provides enough information to characterize that behavior. From 1890 to 1940, the United States became an increasingly closed economy and experienced the most pronounced fluctuations in income and prices of this century. Is our current understanding of the behavior of U.S. imports consistent with those features of the U.S. economy? Being consistent with the distant past might not appear as relevant for forecasting, but the literature ignoring that past offers a range of elasticity estimates wide enough to suggest that the role of income and prices in determining imports is not known with any precision. This paper offers the first analysis of that role using data since 1890. Estimating the elasticities of the most popular model in the literature with 1890-1992 data, I find that income and prices do not affect imports whereas the opposite conclusion arises with postwar data. The difference in results stems from differences in the time-series properties of the data in the two samples. As an alternative, I consider several models consistent with both optimization and the time-series properties of the data. These models predict substantial secular changes in income and price elasticities and confirm the importance of optimization for characterizing the behavior of U.S. imports. What is new about the results is that only through optimization can one recognize the implications of the evolution of U.S. trade for estimating elasticities.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.federalreserve.gov/pubs/ifdp/1994/475/default.htm
    Download Restriction: no

    File URL: http://www.federalreserve.gov/pubs/ifdp/1994/475/ifdp475.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 475.

    as in new window
    Length:
    Date of creation: 1994
    Date of revision:
    Handle: RePEc:fip:fedgif:475

    Contact details of provider:
    Postal: 20th Street and Constitution Avenue, NW, Washington, DC 20551
    Web page: http://www.federalreserve.gov/
    More information through EDIRC

    Order Information:
    Web: http://www.federalreserve.gov/pubs/ifdp/order.htm

    Related research

    Keywords: Imports ; Prices;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Warner, Dennis & Kreinin, Mordechai E, 1983. "Determinants of International Trade Flows," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 96-104, February.
    2. Robert Z. Lawrence, 1978. "An Analysis of the 1977 U.S. Trade Deficit," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 159-190.
    3. Rudiger Dornbusch & Stanley Fischer, 1987. "The Open Economy: Implications for Monetary and Fiscal Policy," NBER Working Papers 1422, National Bureau of Economic Research, Inc.
    4. Murray, Tracy & Ginman, Peter J, 1976. "An Empirical Examination of the Traditional Aggregate Import Demand Model," The Review of Economics and Statistics, MIT Press, vol. 58(1), pages 75-80, February.
    5. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    6. Barnett, William A., 1984. "On the flexibility of the Rotterdam model : A first empirical look," European Economic Review, Elsevier, vol. 24(3), pages 285-289, April.
    7. Khan, Mohsin S & Ross, Knud Z, 1975. "Cyclical and Secular Income Elasticities of the Demand for Imports," The Review of Economics and Statistics, MIT Press, vol. 57(3), pages 357-61, August.
    8. Barnett, William A, 1979. "Theoretical Foundations for the Rotterdam Model," Review of Economic Studies, Wiley Blackwell, vol. 46(1), pages 109-30, January.
    9. Goldstein, Morris & Khan, Mohsin S & Officer, Lawrence H, 1980. "Prices of Tradable and Nontradable Goods in the Demand for Total Imports," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 190-99, May.
    10. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
    11. Stern, Robert M & Baum, Christopher F & Greene, Mark N, 1979. "Evidence on Structural Change in the Demand for Aggregate U.S. Imports and Exports," Journal of Political Economy, University of Chicago Press, vol. 87(1), pages 179-92, February.
    12. Marquez, Jaime, 1990. "Bilateral Trade Elasticities," The Review of Economics and Statistics, MIT Press, vol. 72(1), pages 70-77, February.
    13. 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.).
    14. Zietz, Joachim & Pemberton, Donald K., 1993. "Parameter instability in aggregate US import demand functions," Journal of International Money and Finance, Elsevier, vol. 12(6), pages 654-667, December.
    15. Paul Krugman, 1989. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
    16. Peter B. Clark, 1974. "The effects of recent exchange rate changes on the U.S. trade balance," International Finance Discussion Papers 52, Board of Governors of the Federal Reserve System (U.S.).
    17. Moffett, Michael H., 1989. "The J-curve revisited: an empirical examination for the United States," Journal of International Money and Finance, Elsevier, vol. 8(3), pages 425-444, September.
    18. Deyak, Timothy A & Sawyer, W Charles & Sprinkle, Richard L, 1989. "An Empirical Examination of the Structural Stability of Disaggregated U.S. Import Demand," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 337-41, May.
    19. Thursby, Jerry G & Thursby, Marie C, 1984. "How Reliable Are Simple, Single Equation Specifications of Import Demand?," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 120-28, February.
    20. 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.
    21. Houthakker, Hendrik S & Magee, Stephen P, 1969. "Income and Price Elasticities in World Trade," The Review of Economics and Statistics, MIT Press, vol. 51(2), pages 111-25, May.
    22. Michael C. Deppler & Duncan M. Ripley, 1978. "The World Trade Model: Merchandise Trade," IMF Staff Papers, Palgrave Macmillan, vol. 25(1), pages 147-206, March.
    23. Robert E. Lipsey, 1994. "U.S. Foreign Trade and the Balance of Payments, 1800-1913," NBER Working Papers 4710, National Bureau of Economic Research, Inc.
    24. Geraci, Vincent J & Prewo, Wilfried, 1982. "An Empirical Demand and Supply Model of Multilateral Trade," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 432-41, August.
    25. Richard A. Easterlin & Victor R. Fuchs & Simon Kuznets, 1980. "American Population since 1940," NBER Chapters, in: The American Economy in Transition, pages 275-348 National Bureau of Economic Research, Inc.
    26. Byron, R. P., 1984. "On the flexibility of the Rotterdam model," European Economic Review, Elsevier, vol. 24(3), pages 273-283, April.
    27. Dickey, David A & Pantula, Sastry G, 1987. "Determining the Ordering of Differencing in Autoregressive Processes," Journal of Business & Economic Statistics, American Statistical Association, vol. 5(4), pages 455-61, October.
    28. Robert Z. Lawrence, 1990. "U.S. Current Account Adjustment: An Appraisal," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 343-392.
    29. Haynes, Stephen E & Stone, Joe A, 1983. "Secular and Cyclical Responses of U.S. Trade to Income: An Evaluation of Traditional Models," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 87-95, February.
    30. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. John H. Rogers, 1995. "Real shocks and real exchange rates in really long-term data," International Finance Discussion Papers 493, Board of Governors of the Federal Reserve System (U.S.).

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:fip:fedgif:475. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kris Vajs).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.