Is the Armington Elasticity Really Constant across Importers?

This paper shows that the Armington elasticity, which refers to both the elasticity of substitution across goods and the price elasticity of demand under the assumption of a large number of varieties, systematically changes from one importer country to another in an international trade context. Then a natural question to ask is "What determines the Armington elasticity?" The answer comes from the distinction between the elasticity of demand with respect to the destination price (i.e., the Armington elasticity) and the elasticity of demand with respect to the source price. Under additive trade costs, it is shown that the elasticity of demand with respect to the destination price is equal to the sum of the elasticity of demand with respect to the source price and the elasticity of demand with respect to the trade costs. The empirical results using the United States export data at the state level support this relation; hence, it is more likely to have a constant elasticity of demand with respect to the source price rather than a constant Armington elasticity under additive trade costs. In terms of policy implications, the constant Armington elasticity undervalues the effects of a policy change around 3 or 4 times compared to the importer-specific Armington elasticities.Armington Elasticity; International Trade; Trade Ratios; State Exports; the United States

How Important is Technology? A Counterfactual Analysis

The multiplier effect of total factor productivity on aggregate output in the one-sector neoclassical growth model is well known, but what about the effects of regional productivity levels on the aggregate output as well as other national and regional variables? This paper studies the impact of productivity changes in the goods sector and the transportation sector in a general equilibrium trade model where agents in each location produce different varieties of a common set of goods. Wages are assumed to be equalized in nominal terms across locations, with differences in purchasing power (due to trade costs) offset by agents' preferences for particular locations in the initial steady-state. Instead of assuming iceberg costs, a transportation sector is modeled to allow an efficient distribution of workers across the production and transportation sectors. The state level data from the U.S. support the model, and the comparative statics exercises have several implications on the national and state-level variables of the U.S. economy. It is shown that if the national production technology level (i.e., the production technology level in each region) is doubled, the national output increases by 5 times, the price dispersion across regions increases by 20%, the population dispersion across regions decreases by 1%, and the ratio of production labor force to transportation labor force increases by 10 times. As the transportation costs approach zero, the national output increases by more than 10 times, the price dispersion across regions decreases by 20%, the population dispersion across regions increases by 1%, and the ratio of production labor force to transportation labor force increases by 5 times.Technology, Trade, Intermediate Inputs, Transportation

Twin Crises in Turkey: A Comparison of Currency Crisis Models

This paper analyzes the twin crises in Turkey experienced in 2000 and 2001. After a detailed survey of currency crisis models, together with a brief descriptive overview of the crises in Turkey, the similarities among the twin crises in Turkey and the models that have been developed to explain preceding crises in the world are investigated. It is found that the Turkish twin crises cannot be explained by using any individual generation of models, namely first generation models, second generation models or third generation models. Instead, a combination of these models is more appropriate to explain the details of the twin crises.Currency crisis ; speculative attack ; exchange rate targeting ; Turkey

Distribution of Consumption, Production and Trade within the U.S.

This paper attempts to determine the main motivation behind intranational and international trade by introducing a model that considers the distributions of production and consumption within the U.S. at the industry level. On the consumption side, industry- and state-specific international imports and elasticities of substitution are shown to be systematically connected to consumption agglomeration effects, while on the production side, industry- and state-specific international exports and intermediate input trade are shown to be systematically connected to production agglomeration and specialization effects. Industry structures also play an important role in the determination and magnitude of these effects.Regional Trade; Intermediate Inputs; The United States

Inflation Targeting and Inflation Convergence within Turkey

Using a disaggregated level CPI data, this paper compares bilateral convergence properties of Turkish regional inflation rates between pre-inflation-targeting and inflation-targeting periods. Rather than using an ad hoc date for the introduction of inflation-targeting regime, structural break dates are estimated for Turkish national inflation rate as well as the standard deviation of Turkish regional inflation rates. The first moment of Turkish national inflation rate has an estimated break at the beginning of explicit inflation-targeting regime in January 2002, and the second moment of Turkish regional inflation rates has an estimated break at the financial crisis in February 2001 after which Turkey adopted a flexible exchange rate. It is found that during the inflation-targeting period, Turkish regional inflation rates have converged to each other in terms of CPI groups with relatively non-tradable components, and they have diverged from each other in terms of CPI groups with relatively tradable components.Inflation Targeting; Inflation Rate Convergence; Regional Analysis; Turkey

Oil shocks through international transport costs: evidence from U.S. business cycles

The effects of oil shocks on output volatility through international transport costs are investigated in an open-economy DSGE model. Two versions of the model, with and without international transport costs, are structurally estimated for the U.S. economy by a Bayesian approach for moving windows of ten years. For model selection, the posterior odds ratios of the two versions are compared for each ten-year window. The version with international transport costs is selected during periods of high volatility in crude oil prices. The contribution of international transport costs to the volatility of U.S. GDP has been estimated as high as 36 percent during periods of oil crises.Monetary policy ; International trade

Understanding Interstate Trade Patterns

This paper models interstate trade patterns of U.S. states using a partial equilibrium trade model. The theoretical model deviates from the existing gravity literature by employing trade estimations in ratio form, with the ratio of imports from different sources, rather than the level of bilateral trade between two locations. Using this specification, together with considering the production side through technology levels, the elasticity of substitution across goods, the elasticity of substitution across varieties of each good, and the good specific elasticity of distance measures are all identified in the empirical analysis, which is not the case in gravity type studies. The ratio transformation also effectively eliminates any proportional distribution margin, international trade, or overstatement of distance measures from the theoretical trade equation. Compared to empirical international trade literature, the elasticity of substitution is estimated to be lower, while the elasticity of distance is estimated to be higher intranationally.Trade Ratios; Transportation; The United States

Understanding Gasoline Price Dispersion

This paper models and estimates the gasoline price dispersion across time and space by using a unique data set at the gas-station level within the U.S.. Nationwide effects (measured by time fixed effects or crude oil prices) explain up to about 51% of the gasoline price dispersion across stations. Refinery-specific costs, which have been ignored in the literature due to using local data sets within the U.S., contribute up to another 33% to the price dispersion. While state taxes explain about 12% of the price dispersion, spatial factors such as local agglomeration externalities, land prices, distribution costs of gasoline explain up to about 4%. The contribution of brand-specific factors is relatively minor

Geographical Dispersion of Consumer Search Behavior

This paper investigates whether consumer search behavior differs across zip codes within the U.S.. As an application, daily gasoline price data covering virtually all gas stations within the U.S. are employed to estimate the distribution of search costs in each zip code. The results show that there are signifcant differences across zip codes regarding the expected number of searches achieved before consumers purchase gasoline. In order to have a systematic explanation, such differences are further connected to geographic, demographic and economic conditions of the zip codes in a secondary analysis. The corresponding results imply several strategies for gas stations in order to maximize profits/markups; suggestions follow for policy makers and regulators to reduce redistributive effects of information barriers across locations