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The Elasticity of Substitution in Demand for Non-Tradable Goods in Costa Rica

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  • Gilberto E. Arce
  • Edgar Robles C.
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    Abstract

    Using quarterly (annual) information on consumption and prices of non-tradable goods for the period 1980-2002 (1981-2001), this paper estimates the elasticity of substitution in demand for non-tradable goods in Costa Rica. The unit root and cointegration properties of the time series are tested, and then controlling for exogenous variables, the elasticity of substitution belonging to the interval [1. 46, 2. 14] ([ 0. 22, 0. 28]) is estimated. These results are statistically robust.

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    Bibliographic Info

    Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 3183.

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    Date of creation: May 2004
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    Handle: RePEc:idb:wpaper:3183

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    1. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584.
    2. Reinhart, Carmen & Ostry, Jonathan, 1991. "Private Saving and Terms of Trade Shocks," MPRA Paper 13716, University Library of Munich, Germany.
    3. Charles Engel & Kenneth Kletzer, 1987. "Saving and Investment in an Open Economy with Non-Traded Goods," NBER Working Papers 2141, National Bureau of Economic Research, Inc.
    4. Guillermo A. Calvo & Alejandro Izquierdo & Ernesto Talvi, 2003. "Sudden Stops, the Real Exchange Rate, and Fiscal Sustainability: Argentina's Lessons," NBER Working Papers 9828, National Bureau of Economic Research, Inc.
    5. Mendoza, Enrique G., 2000. "On the Instability of Variance Decompositions of the Real Exchange Rate Across Exchange- Rate-Regimes: Evidence from Mexico and the United States," Working Papers 00-05, Duke University, Department of Economics.
    6. Leon, Jorge & Laverde, Bernal & Duran, Rodolfo, 2002. "Pass Through del Tipo de Cambio en los Precios de Bienes Transables y No Transables en Costa Rica
      [Exchange Rate Pass Through into the Prices of Tradable and Non Tradable Goods in Costa Rica]
      ," MPRA Paper 44527, University Library of Munich, Germany, revised 2002.
    7. Asea, Patrick K & Mendoza, Enrique G, 1994. "The Balassa-Samuelson Model: A General-Equilibrium Appraisal," Review of International Economics, Wiley Blackwell, vol. 2(3), pages 244-67, October.
    8. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
    9. Charles Engel, 1999. "Accounting for U.S. Real Exchange Rate Changes," Journal of Political Economy, University of Chicago Press, vol. 107(3), pages 507-538, June.
    10. de Cordoba, Gonzalo Fernandez & Kehoe, Timothy J., 2000. "Capital flows and real exchange rate fluctuations following Spain's entry into the European Community," Journal of International Economics, Elsevier, vol. 51(1), pages 49-78, June.
    11. Rudiger Dornbusch, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," NBER Working Papers 0779, National Bureau of Economic Research, Inc.
    12. Mendoza, Enrique G. & Uribe, Martin, 2000. "Devaluation risk and the business-cycle implications of exchange-rate management," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 53(1), pages 239-296, December.
    13. Baxter, Marianne & Jermann, Urban J. & King, Robert G., 1998. "Nontraded goods, nontraded factors, and international non-diversification," Journal of International Economics, Elsevier, vol. 44(2), pages 211-229, April.
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