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International Trade and Intertemporal Substitution

This paper studies the role of international trade delivery lags and variation in the intertemporal marginal rate of substitution in accounting for puzzling features of cyclical fluctuations of 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.

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DOI: 10.20955/wp.2017.004


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