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On the Connections between Intertemporal and Intra-temporal Trades

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  • Jiandong Ju
  • Kang Shi
  • Shang-Jin Wei

Abstract

This paper develops a new theory of international economics by introducing Heckscher-Ohlin features of intra-temporal trade into an intertemporal trade approach of current account. To do so, we consider a dynamic general equilibrium model with tradable sectors of different factor intensities, which allows for substitution between intertemporal trade (current account adjustment) and intra-temporal trade (goods trade). 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 consistent with the theory.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17549.

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Date of creation: Oct 2011
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Publication status: published as Journal of International Economics Available online 7 January 2014
Handle: RePEc:nbr:nberwo:17549

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Cited by:
  1. Qingyuan Du & Shang-Jin Wei & Peichu Xie, 2013. "Roads and the Real Exchange Rate," NBER Working Papers 19291, National Bureau of Economic Research, Inc.

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