On the connections between intra-temporal and intertemporal trades |
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| Institution: | 1. Tsinghua University, China;2. University of Oklahoma, United States;3. Chinese University of Hong Kong, Hong Kong;4. Columbia Business School, United States;5. NBER, United States;1. University of Passau, Dr.-Hans-Kapfinger-Straße 14b, 94032 Passau, Germany;2. PSE-Ecole des Ponts Paris Tech, 48 Boulevard Jourdan, 75014 Paris, France;3. CEPR, United Kingdom;1. The Monetary Policy Committee, Bank of England, United Kingdom;2. Bank of England, United Kingdom;1. Department of Economics, Oregon State University, Corvallis, OR, USA;2. Department of Applied Economics, University of Maryland, College Park, MD, USA;3. Department of Economics, Southern Illinois University, Carbondale, IL, USA;4. Department of Accounting, Economics and Finance, Southeast Missouri State University, Cape Girardeau, MO, USA;1. Sauder School of Business, University of British Columbia, Canada;2. University of International Business and Economics, China;3. CEPR, United Kingdom;1. DIW Berlin and Freie Universität Berlin, Mohrenstr. 58, 10117 Berlin, Germany;2. Tallinn University of Technology and Bank of Estonia, Estonia pst. 13, Tallinn 15095, Estonia |
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| Abstract: | 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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