Elasticity Optimism

46 Pages Posted: 5 Jan 2010

See all articles by Jean M. Imbs

Jean M. Imbs

Paris School of Economics (PSE); Centre for Economic Policy Research (CEPR); Swiss Finance Institute

Isabelle Mejean

International Monetary Fund (IMF)

Multiple version iconThere are 3 versions of this paper

Date Written: December 2009

Abstract

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.

Keywords: Consumer goods, Data analysis, Economic models, Exports, Imports, International trade, Monetary policy, United States

Suggested Citation

Imbs, Jean M. and Mejean, Isabelle, Elasticity Optimism (December 2009). IMF Working Papers, Vol. , pp. 1-45, 2009. Available at SSRN: https://ssrn.com/abstract=1531512

Jean M. Imbs (Contact Author)

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swiss Finance Institute ( email )

c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Isabelle Mejean

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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