A Century of Trade Elasticities for Canada, Japan, and the United States
Abstract
Virtually all that is known about the behavior of imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of trade over the last century cannot avoid asking whether the postwar period provides enough information to characterize that behavior. Indeed, the literature ignoring that past offers a large range of elasticity estimates suggesting that the role of income and prices in determining imports is not known with any precision. This paper offers the first analysis ofthat role using data since 1890 for Canada, Japan, and the United States. Estimating the elasticities of the most popular model in the literature with 1890-1992 data, I find that income and prices do not affect imports whereas the opposite conclusion arises with postwar data. The difference in results stems from changes in the composition of expenditures between domestic and foreign products. As an alternative, I consider several models consistent with both optimization and the time-series properties ofthe data. These models predict substantial secular changes in income and price elasticities and confirm the importance of optimization for characterizing the behavior of imports.
ABSTRACT Virtually all that is known about the behavior ofimports rests on studies estimatingincome and price elasticitieswith postwar data. But anyone examiningthe evolution oftrade overthe last century cannot avoid askingwhetherthe postwar period provides enough information to characterizethat behavior. Indeed, the literature ignoringthat past offers a large range ofelasticity estimates suggestingthatthe role ofincome and prices in determining imports is not known with any precision. This paper offers the first analysis ofthat role using data since 1890 for Canada, Japan, andthe United States. Estimatingthe elasticities ofthe most popular model in the literature with 1890-1992 data, I find that income and prices do not affect importswhereas the opposite conclusion ariseswith postwar data. The difference in results stems from changes inthe composition ofexpendituresbetween domestic and foreign products. As an alternative, I consider several models consistent withboth optimization and the time-series properties ofthe data. These models predict substantial secular changes in income and price elasticities and confirm the importance ofoptimizationfor characterizingthebehaviorofimports.
Cite this document
Jaime Marquez (1995). A Century of Trade Elasticities for Canada, Japan, and the United States (IFDP 1995-531). Board of Governors of the Federal Reserve System, International Finance Discussion Papers. https://whenthefedspeaks.com/doc/ifdp_1995-531
@techreport{wtfs_ifdp_1995_531,
author = {Jaime Marquez},
title = {A Century of Trade Elasticities for Canada, Japan, and the United States},
type = {International Finance Discussion Papers},
number = {1995-531},
institution = {Board of Governors of the Federal Reserve System},
year = {1995},
url = {https://whenthefedspeaks.com/doc/ifdp_1995-531},
abstract = {Virtually all that is known about the behavior of imports rests on studies estimating income and price elasticities with postwar data. But anyone examining the evolution of trade over the last century cannot avoid asking whether the postwar period provides enough information to characterize that behavior. Indeed, the literature ignoring that past offers a large range of elasticity estimates suggesting that the role of income and prices in determining imports is not known with any precision. This paper offers the first analysis ofthat role using data since 1890 for Canada, Japan, and the United States. Estimating the elasticities of the most popular model in the literature with 1890-1992 data, I find that income and prices do not affect imports whereas the opposite conclusion arises with postwar data. The difference in results stems from changes in the composition of expenditures between domestic and foreign products. As an alternative, I consider several models consistent with both optimization and the time-series properties ofthe data. These models predict substantial secular changes in income and price elasticities and confirm the importance of optimization for characterizing the behavior of imports.},
}