This paper studies the process of entry, dumping, and shakeout and the properties of the free-trade equilibrium that results in a world in which countries differ in their stock of technological knowledge, but not necessarily in their stock of technological capability. The model can account for the dumping of products by newly industrializing countries and technological newcomers at a price that fails to cover average cost in the face of a surge in world demand for the dumped product, a phenomenon that has not been uncommon in recent years.

Richard H. Clarida, Consumption, Import Prices, and the Demand for Imported Consumer Durables: A Structural Econometric Investigation, The Review of Economics and Statistics, Vol. 78, No. 3 (Aug., 1996), pp. 369-374

This paper uses a two-good version of Hall's (1978) representative agent, permanent income model to derive a structural import demand equation for nondurable consumer goods. Under the identification restriction that taste shocks are stationary, the model is shown to imply that log imports, log domestic goods, and the log relative price of imports are co-integrated. The data decisively reject the null hypothesis that imports, the relative price of imports, and the consumption of home goods are not co-integrated. We employ the non-linear least squares technique recently proposed by Phillips and Loretan (1990> to estimate the parameters of the import demand equation. The long-run price elasticity of import demand is estimated to be -0.95. The elasticity of import demand with respect to a permanent increase in real spending is estimated to be 2.20. These estimates fall within the range reported in studies by Helkie and Hooper (1986), Cline (1989), and the many studies surveyed by Goldstein and Kahn (1985) The message of this paper is that, at least for non-durable consumer goods, it is possible to interpret the traditional import demand equation as a co-integrating regression, and to interpret the price and expenditure elasticities estimated from such a trade equation as a co-integrating vector. Estimates of the co-integrating vector can be used to recover estimates of the utility parameters of the representative household. The similarity between the OLS and Phillips-Loretan estimates of the parameters suggests that the simultaneous equation bias is not large.(This abstract was borrowed from another version of this item.)

A country in the theory of international trade is a collection of households endowed with a given supply of productive factors, preferences, and technologies for producing goods that can be traded on world markets. The state plays a rather limited role, usually that of impeding the free flow of goods across national borders with tariffs or other trade restrictions and perhaps transferring income from the winners to losers from international trade. By tradition, the function of the invisible hand of the price system requires little or nothing from an invisible government, which may, for most inquiries, be safely ignored. This tradition, in contrast to many others in economics, does not date back to Adam Smith. Smith regarded governments as performing essential tasks that provide the framework for the efficient operation of private markets. Maintaining law and order, supporting the physical and social infrastructure of the country, and enforcing the contracts that private agents enter into are just several among the many duties of the sovereign without which, according to this Smithian view, a market economy cannot function. While Douglass North (1981) and a few

We develop a framework to extract information regarding subsequent spot rate movements from the term structure of forward exchange premiums while admitting possible deviations from rationality and the presence of risk premiums. Using weekly dollar–sterling, dollar– mark, and dollar–yen data, the restrictions implied by our framework are not rejected, and spot and forward exchange rates together are well represented by a vector error correction model (VECM). Dynamic out-of-sample forecasts up to one year ahead indicate that the VECM is strikingly superior to a range of alternative forecasts, including a random walk and standard spot-forward regressions.

Short‐term interest rates in the United States have been “too high” since October 1979 in the sense that both unconditional and conditional forecasts, based on an estimated vector autoregression model summarizing the prior experience, underpredict short‐term interest rates during this period. Although a nonstructural model cannot directly answer the question of why this has been so, comparisons of alternative conditional forecasts point to the post‐October 1979 relationship between the growth of real income and the growth of real money balances as closely connected to the level and pattern of short‐term interest rates. This finding is consistent with the authors' earlier conclusion, based on analysis of a small structural macroeconometric model, that the high average level of interest rates has been due to a combination of slow growth of (nominal) money supply and continuing price inflation, which together have kept real balances small in relation to prevailing levels of economic activity.

Richard H. Clarida, Benjamin M. Friedman, The Behavior of U.S. Short-Term Interest Rates Since October 1979, The Journal of Finance, Vol. 39, No. 3, Papers and Proceedings, Forty-Second Annual Meeting, American Finance Association, San Francisco, CA, December 28-30, 1983 (Jul., 1984), pp. 671-682