International Trade and Intertemporal Substitution / Fernando Leibovici, Michael E. Waugh.

Format:

Book

Author/Creator:

Leibovici, Fernando.

Contributor:

National Bureau of Economic Research.

Waugh, Michael E.

Series:

Working Paper Series (National Bureau of Economic Research) no. w20498.

NBER working paper series no. w20498

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2014.

Summary:

This paper studies the dynamics of international trade flows at business cycle frequencies. We show that introducing dynamic considerations into an otherwise standard model of trade can account for several puzzling features of trade flows at business cycle frequencies. 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 formalize this idea and calibrate our model to match key features of U.S. data. We find that, in contrast to standard static models of international trade, our model is quantitatively consistent with salient features of U.S. cyclical import fluctuations. We also find that our model accounts for two-thirds of the peak-to-trough decline in imports during the 2008-2009 recession.

Notes:

Print version record

September 2014.