Working Paper: NBER ID: w2011
Authors: W. Erwin Diewert; Catherine J. Morrison
Abstract: In this paper we theoretically and empirically model import demand and export supply behavior of firms for the U.S. economy from 1967-1982. A producer theoretic approach based on duality theory is used to derive econometric systems of producer supply and demand functions that are consistent with profit maximizing behavior. This system is then empirically implemented and the resulting estimates used to construct a full set of supply and demand elasticities characterizing import demand and export supply functions as well as domestic output supply and labor demand. These elasticities are in turn used to derive devaluation elasticities and some estimates of the equilibrium real exchange rate that would cause the U.S. trade surplus to reach zero.
Keywords: export supply; import demand; production theory; econometric modeling; trade elasticity
JEL Codes: F10; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| devaluation (F31) | trade balance (F14) |
| domestic price changes (P22) | domestic supply (R22) |
| wage rates (J31) | domestic supply (R22) |
| producer theoretic approach (D20) | accurate representation of trade functions (F10) |