TY  - JOUR
AU  - Ju,Jiandong
AU  - Shi,Kang
AU  - Wei,Shang-Jin
TI  - On the Connection between Intertemporal and Intra-temporal Trades
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17549
PY  - 2011
Y2  - October 2011
UR  - http://www.nber.org/papers/w17549
L1  - http://www.nber.org/papers/w17549.pdf
N1  - Author contact info:
Jiandong Ju
Department of Economics
University of Oklahoma
Norman, OK  73019
E-Mail: jdju@ou.edu

Kang Shi
Department of Economics
Chinese University of Hong Kong
Shatin, New Territories
Hong Kong
E-Mail: kangshi@cuhk.edu.hk

Shang-Jin Wei
Graduate School of Business
Columbia University
Uris Hall 619
3022 Broadway
New York, NY 10027-6902
Tel: 212/854-9139
E-Mail: shangjin.wei@columbia.edu
AB  - Sticky (or slow-adjusting) current accounts are observed in many countries. This paper explores the role of domestic factor market flexibility in understanding the phenomenon. To do so, we consider multiple tradable sectors with different factor intensities and allow substitution between intertemporal trade (current account adjustment) and intra-temporal trade (goods trade) in a dynamic general equilibrium model. 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 in support of the theory.
ER  -