Cover IMF Working Papers
Elasticity Optimism
Author:
International Monetary Fund
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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 279
Language:
English
Publication Date:
01 Dec 2009
DOI:
https://doi.org/10.5089/9781451874242.001
ISBN:
9781451874242
ISSN:
1018-5941
Pages:
45
Keywords:
WP
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2009: Issue 279