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International Trade and Intertemporal Substitution

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  • Fernando Leibovici
  • Michael E. Waugh

Abstract

This paper quantitatively investigates the extent to which variation in the intertemporal marginal rate of substitution can help account for puzzling features of cyclical fluctuations of international trade volumes. Our insight is that, because international trade is time-intensive, variation in the rate at which agents are willing to substitute across time affects how trade volumes respond to changes in output and prices. We use a standard small open economy model with time-intensive international trade, calibrated to match key features of U.S. data and disciplining the variation in the intertemporal marginal rate of substitution using asset price data. We find that variation in the intertemporal marginal rate of substitution helps rationalize puzzling features of import fluctuations and that this mechanism is quantitatively important during both normal and crisis times.

Suggested Citation

  • Fernando Leibovici & Michael E. Waugh, 2016. "International Trade and Intertemporal Substitution," Working Papers 2017-4, Federal Reserve Bank of St. Louis, revised 31 Oct 2018.
  • Handle: RePEc:fip:fedlwp:2017-004
    DOI: 10.20955/wp.2017.004
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    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. International Trade and Intertemporal Substitution
      by Christian Zimmermann in NEP-DGE blog on 2014-12-22 21:24:34

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    Cited by:

    1. Ana Maria Santacreu & Fernando Leibovici, 2016. "International Trade Fluctuations and Monetary Policy," 2016 Meeting Papers 367, Society for Economic Dynamics.
    2. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.
    3. Nicolas Berman & José de Sousa & Philippe Martin & Thierry Mayer, 2013. "Time to Ship during Financial Crises," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 225-260.
    4. Blonigen, Bruce A. & Piger, Jeremy & Sly, Nicholas, 2014. "Comovement in GDP trends and cycles among trading partners," Journal of International Economics, Elsevier, vol. 94(2), pages 239-247.
    5. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 333-359.
    6. Sebastian Weber & Anna Ivanova, 2011. "Do Fiscal Spillovers Matter?," IMF Working Papers 11/211, International Monetary Fund.
    7. Horag Choi & George Alessandria, 2015. "The Dynamics of the Trade Balance and the Real Exchange Rate: The J Curve and Trade Costs?," 2015 Meeting Papers 1413, Society for Economic Dynamics.
    8. Nicholas Sly, 2016. "Global Uncertainty and U.S. Exports," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-23.
    9. Logan Lewis, 2013. "Menu Costs, Trade Flows, and Exchange Rate Volatility," 2013 Meeting Papers 313, Society for Economic Dynamics.
    10. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, May.

    More about this item

    Keywords

    International trade; trade elasticity; dynamics; international; business cycles;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F1 - International Economics - - Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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