Optimism bias? The elasticity puzzle in international economics revisited
The elasticity of substitution between domestic and imported goods is a central parameter in macroeconomic models, but after decades of empirical studies there is no consensus on its magnitude. Earlier literature using time series arrives at low values, while more recent studies using panel-based econometric methods on disaggregated data find higher values. We examine the econometric methodology of this more recent literature, which follows the seminal work by Feenstra (1994), looking in more detail at the effect on the results of the non-linear mapping between reduced-form and structural parameters. Our main contribution is the use of bootstrap methods, which offer more insight into the Feenstra method and can explain why researchers applying it may tend to find high estimates. The bootstrap not only allows us to obtain considerably less biased estimates of the structural elasticity parameter, but also to better characterize their accuracy, a point vastly overlooked by the literature. JEL Classification: C14, C23, F14
|Date of creation:||Oct 2012|
|Contact details of provider:|| Postal: 60640 Frankfurt am Main, Germany|
Phone: +49 69 1344 0
Fax: +49 69 1344 6000
Web page: http://www.ecb.europa.eu/
More information through EDIRC
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.:
- Jean Imbs & Isabelle Mejean, 2015.
American Economic Journal: Macroeconomics,
American Economic Association, vol. 7(3), pages 43-83, July.
- Jean Imbs & Isabelle Mejean, 2008. "Elasticity Optimism," EIEF Working Papers Series 0805, Einaudi Institute for Economics and Finance (EIEF), revised Mar 2008.
- Jean Imbs & Isabelle Mejean, 2015. "Elasticity Optimism," PSE - Labex "OSE-Ouvrir la Science Economique" hal-01301577, HAL.
- Jean Imbs & Isabelle Méjean, 2009. "Elasticity optimism," Working Papers hal-00362403, HAL.
- Jean Imbs & Isabelle Mˆmjean, 2008. "Elasticity Optimism," Working Papers 242008, Hong Kong Institute for Monetary Research.
- Imbs, Jean & Mejean, Isabelle, 2009. "Elasticity Optimism," CEPR Discussion Papers 7177, C.E.P.R. Discussion Papers.
- International Monetary Fund, 2009. "Elasticity Optimism," IMF Working Papers 09/279, International Monetary Fund.
- Cavaliere, Giuseppe & Rahbek, Anders & Taylor, A.M. Robert, 2010. "Testing for co-integration in vector autoregressions with non-stationary volatility," Journal of Econometrics, Elsevier, vol. 158(1), pages 7-24, September.
- Giuseppe Cavaliere & Anders Rahbek & A. M. Robert Taylor, 2007. "Testing for co-integration in vector autoregressions with non-stationary volatility," Discussion Papers 07/02, University of Nottingham, Granger Centre for Time Series Econometrics.
- Giuseppe Cavaliere & Anders Rahbek & A.M.Robert Taylor, 2008. "Testing for Co-integration in Vector Autoregressions with Non-Stationary Volatility," CREATES Research Papers 2008-50, Department of Economics and Business Economics, Aarhus University.
- Giuseppe Cavaliere & Anders Rahbek & A. M. Robert Taylor, 2008. "Testing for Co-integration in Vector Autoregressions with Non-Stationary Volatility," Discussion Papers 08-34, University of Copenhagen. Department of Economics.
- Davidson, Russell & Flachaire, Emmanuel, 2008. "The wild bootstrap, tamed at last," Journal of Econometrics, Elsevier, vol. 146(1), pages 162-169, September.
- Davidson, R. & Flachaire, E., 1999. "The Wild Bootstrap, Tamed at Last," G.R.E.Q.A.M. 99a32, Universite Aix-Marseille III.
- Russell Davidson & Emmanuel Flachaire, 2008. "The wild bootstrap, tamed at last," Post-Print hal-00649250, HAL.
- Russell Davidson & Emmanuel Flachaire, 2001. "The Wild Bootstrap, Tamed at Last," Working Papers 1000, Queen's University, Department of Economics.
- Emmanuel Flachaire, 2001. "The Wild Bootstrap, Tamed at Last," STICERD - Distributional Analysis Research Programme Papers 58, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Russell Davidson & Emmanuel Flachaire, 2001. "The wild bootstrap, tamed at last," LSE Research Online Documents on Economics 6560, London School of Economics and Political Science, LSE Library.
- Russell Davidson & Emmanuel Flachaire, 2000. "The Wild Bootstrap, Tamed at Last," Econometric Society World Congress 2000 Contributed Papers 1413, Econometric Society.
- Feenstra & R.C., 1990. "New Goods and Index Members: U.S. Import Prices," Papers 371, California Davis - Institute of Governmental Affairs.
- Robert C. Feenstra, 1991. "New Goods and Index Numbers: U.S. Import Prices," NBER Working Papers 3610, National Bureau of Economic Research, Inc.
- Hélène Erkel-Rousse & Daniel Mirza, 2002. "Import price elasticities: reconsidering the evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 282-306, May.
- Erkel-Rousse, H. & Mirza, D., 2000. "Import Price-Elasticities : Reconsidering the Evidence," Papiers d'Economie MathÃ©matique et Applications 2000.52, UniversitÃ© PanthÃ©on-Sorbonne (Paris 1).
- Helene Erkel-Rousse & Daniel Mirza, 2000. "Import Price-Elastcities: Reconsidering the Evidence," Econometric Society World Congress 2000 Contributed Papers 0909, Econometric Society.
- Flachaire, Emmanuel, 2005. "Bootstrapping heteroskedastic regression models: wild bootstrap vs. pairs bootstrap," Computational Statistics & Data Analysis, Elsevier, vol. 49(2), pages 361-376, April.
- Emmanuel Flachaire, 2005. "Bootstrapping heteroskedastic regression models: wild bootstrap vs. pairs bootstrap," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00175910, HAL.
- Cavaliere, Giuseppe & Rahbek, Anders & Taylor, A.M. Robert, 2010. "Cointegration Rank Testing Under Conditional Heteroskedasticity," Econometric Theory, Cambridge University Press, vol. 26(06), pages 1719-1760, December.
- Giuseppe Cavaliere & Anders Rahbek & A.M.Robert Taylor, 2009. "Co-integration Rank Testing under Conditional Heteroskedasticity," CREATES Research Papers 2009-22, Department of Economics and Business Economics, Aarhus University.
- Murray C. Kemp, 1962. "Errors Of Measurement And Bias In Estimates Of Import Demand Parameters1," The Economic Record, The Economic Society of Australia, vol. 38(83), pages 369-372, 09. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ecb:ecbwps:20121482. 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: (Official Publications)
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.