Abstract
This paper examines the stability of import and export demand functions for the United States over the 1975q1–2001q2 period. Using the Johansen maximum likelihood approach, an export demand function is readily identified. In contrast, there appears to be a structural break in the import demand function in 1995; specifications incorporating this break pass tests for cointegration, although the price elasticity is not statistically significant. Only when excluding computers and parts from the import series is a stable import demand function detected. The resulting point estimates confirm the persistence of the income asymmetry first noted by Houthakker and Magee, although in a slightly diminished form. One policy implication of these findings is that dollar depreciation—unaccompanied by a realignment of growth trends—is insufficient to substantially reduce the U.S. trade deficit.
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F31, F41
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Chinn, M. Doomed to Deficits? Aggregate U.S. Trade Flows Re-Examined. Rev. World Econ. 141, 460–485 (2005). https://doi.org/10.1007/s10290-005-0039-3
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DOI: https://doi.org/10.1007/s10290-005-0039-3