American Economic Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Elasticity Optimism
American Economic Journal: Macroeconomics
(pp. 43–83)
Abstract
On average, estimates of trade elasticities are smaller in aggregate data than at sector level. This is an artifact of aggregation. Estimations performed on aggregate data constrain sector elasticities to homogeneity, which creates a heterogeneity bias. The paper shows such a bias exists in two prominent approaches used to estimate elasticities, which has meaningful consequences for the calibration of the trade elasticity in one-sector, aggregative models. With elasticities calibrated to aggregate data, macroeconomic models can have predictions at odds with the implications of their multi-sector counterparts. They do not when elasticities are calibrated using a weighted average of sector elasticities. (JEL C51, F13, F14, F41, O19)Citation
Imbs, Jean, and Isabelle Mejean. 2015. "Elasticity Optimism." American Economic Journal: Macroeconomics 7 (3): 43–83. DOI: 10.1257/mac.20130231Additional Materials
JEL Classification
- C51 Model Construction and Estimation
- F13 Trade Policy; International Trade Organizations
- F14 Empirical Studies of Trade
- F41 Open Economy Macroeconomics
- O19 International Linkages to Development; Role of International Organizations