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Elasticity optimism

Author

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  • Jean Imbs

    (HEC Lausanne - Faculté des Hautes Etudes Commerciales (HEC Lausanne), Center for Economic Research - CEPR, Swiss Finance Institute [Geneva] - Swiss Finance Institute)

  • Isabelle Méjean

    (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris)

Abstract

Estimates of the elasticity of substitution between domestic and foreign varieties are small in macroeconomic data, and substantially larger in disaggregated studies. This may be an artifact of heterogeneity. We use disaggregated multilateral trade data to structurally identify elasticities of substitution in US goods. We spell out a partial equilibrium model to aggregate them adequately at the country level. We compare aggregate elasticities that impose equality across sectors, to estimates allowing for heterogeneity. The former are similar in value to conventional macroeconomic estimates; but they are more than twice larger -up to 7- with heterogeneity. The parameter is central to calibrated models in most of international economics. We discuss the difference our corrected estimate makes in various areas of international economics, including the dynamics of external balances, the international transmission of shocks, international portfolio choice and optimal monetary policy.

Suggested Citation

  • Jean Imbs & Isabelle Méjean, 2009. "Elasticity optimism," Working Papers hal-00362403, HAL.
    • Handle: RePEc:hal:wpaper:hal-00362403
    Note: View the original document on HAL open archive server: https://hal.science/hal-00362403
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    References listed on IDEAS

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    More about this item

    Keywords

    Monetary Policy; Elasticités du Commerce; Agrégation; Déséquilibres Globaux; Transmission Internationale; Politique Monétaire.; Trade Elasticities; Aggregation; Calibration; Global Imbalances; International Transmission; International Portfolio; Monetary Policy.;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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