International Trade and Intertemporal Substitution

43 Pages Posted: 7 Jul 2014 Last revised: 8 Sep 2015

See all articles by Fernando Leibovici

Fernando Leibovici

Federal Reserve Banks - Federal Reserve Bank of St. Louis

Michael E. Waugh

New York University (NYU), Leonard N. Stern School of Business, Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: July 1, 2015

Abstract

This paper shows how variation in the intertemporal marginal rate of substitution can account for several puzzling features of cyclical fluctuations in 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 calibrate our model to match key features of U.S. data and discipline the variation in the intertemporal marginal rate of substitution using asset price data. We find that our model is quantitatively consistent with U.S. cyclical import fluctuations.

Suggested Citation

Leibovici, Fernando and Waugh, Michael E., International Trade and Intertemporal Substitution (July 1, 2015). Available at SSRN: https://ssrn.com/abstract=2462982 or http://dx.doi.org/10.2139/ssrn.2462982

Fernando Leibovici (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of St. Louis ( email )

411 Locust St
Saint Louis, MO 63011
United States

Michael E. Waugh

New York University (NYU), Leonard N. Stern School of Business, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

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