Elasticity Optimism

Author/Editor: Imbs, Jean ; Mejean, Isabelle
Publication Date: December 01, 2009
Summary: In most macroeconomic models, the substitutability between domestic and foreign goods is calibrated using aggregated data. This imposes homogeneous elasticities across goods, and the calibration is only valid under this assumption. If elasticities are heterogeneous, the aggregate substitutability is a weighted average of good-specific elasticities, which in general cannot be inferred from aggregated data. We identify structurally the substitutability in US goods using multilateral trade data. We impose homogeneity, and find an aggregate elasticity similar in value to conventional macroeconomic estimates. It is more than twice larger with sectoral heterogeneity. We discuss the implications in various areas of international economics.
Subject(s): Consumer goods | Data analysis | Economic models | Exports | Imports | International trade | Monetary policy | United States

Author's Keyword(s): Trade Elasticities | Heterogeneity | Calibration | Global Imbalances | International Portfolio | Monetary Policy
Publication Date: December 01, 2009
Format: Paper
Stock No: WPIEA2009279 Pages: 45
US$18.00 (Academic Rate:
US$18.00 )
Please address any questions about this title to publications@imf.org