NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

On the Connections between Intertemporal and Intra-temporal Trades

Jiandong Ju, Kang Shi, Shang-Jin Wei

NBER Working Paper No. 17549
Issued in October 2011
NBER Program(s):   IFM   ITI

This paper develops a new theory of international economics by introducing Heckscher-Ohlin features of intra-temporal trade into an intertemporal trade approach of current account. To do so, we consider a dynamic general equilibrium model with tradable sectors of different factor intensities, which allows for substitution between intertemporal trade (current account adjustment) and intra-temporal trade (goods trade). An economy's response to a shock generally involves a combination of a change in the composition of goods trade and a change in the current account. Flexible factor markets reduce the need for the current account to adjust. On the other hand, the more rigid the factor markets, the larger the size of current account adjustment relative to the volume of goods trade, and the slower the speed of adjustment of the current account towards its long-run equilibrium. We present empirical evidence consistent with the theory.

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This paper was revised on December 2, 2013

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Document Object Identifier (DOI): 10.3386/w17549

Published: Journal of International Economics Available online 7 January 2014

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