Time dependent Enke-Samuelson trade models

Abstract

In this chapter we resume the task of constructing a theory of spatial arbitrage that has been undertaken for the equilibrium case in Chapter 3. While time already played a major role in Chapter 6, we yet have to examine the implications of its introduction in the arbitrage models of Chapter 3. Another way to put it, is to say that our objective is to extend the dynamic models considered in chapter 2 to spatially separated markets. In Chapter 6 we have been mainly concerned with the spatial properties of price series. In arbitrage models, however, trade flows and price levels are conjugate variables; accordingly, the predictions of such models not only concern prices but also inter-market trade; they also predict cross relations between trade and prices. This is a distinctive feature of the models to be developed here as compared to standard dynamic price models.