Trade Elasticities for the G‐7 Countrie

Any policy change in currency value should be grounded on analyses of trade elasticities as the impact of any changes in the demand for imports and exports will influence national incomes and/or prices and have repercussions on trade balances. Outcomes of such active international policy can only be predicted with certainty if these trade elasticities are relatively stable over time or if changes in trade elasticities are foreseen. The objective of this short book is to establish whether trade elasticities are stable which keeps this important issue for empirical analysis at the forefront of international economic debate since it first came to popular notoriety with Houthakker and Magee (1969). The authors investigate the stability of trade elasticities across the G‐7 countries (Canada, Japan, the UK, the USA, Germany, France and Italy) which is a sideward step from earlier work by Hooper et al. (1998) where price elasticities for the G‐7 countries for total imports and exports were estimated over the short and long run. One difference between these two books is that Hooper et al. (1998) employed the IMF's real effective exchange rate while this book employs relative prices. Its main contribution to the literature comes from the application of different methods to those employed by Hooper et al. (1998); the earlier version reported instability tests based on static formulations estimated with the Kalman filter technique, whereas this book presents estimates of parameter consistency in co‐integrating trade equations, co‐integrating systems and in error‐correction models within and out‐of‐sample tests

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• Income and Price Elasticities in World Trade

  H S Houthakker, Stephen P Magee•The Review of Economics and…•1969

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