International Elasticity Puzzle

Ruhl(2008)

"In models of international trade, the elasticity of substitution between foreign and domestic goods—the Armington elasticity—determines the behavior of trade flows and international prices.  International real business cycle models need low elasticities, in the range of 1 to 2, to match the quarterly fluctuations in trade balances and the terms of trade, but static applied general equilibrium models need high elasticities, between 10 and 15, to account for the growth in trade following trade liberalization."

Ruhl(2008)"The International Elasticity Puzzle"
www.kimjruhl.com/research-papers/ElasticityMarch08.pdf