Search Results
Working Paper
Do sunk costs of exporting matter for net export dynamics?
Not all firms export every period. Firms enter and exit foreign markets. Previous research has suggested that these export participation decisions have significant aggregate implications. In particular, it has been argued that these export decisions are important for the comovements of net exports and the real exchange rate. In this paper, the authors evaluate these predictions in a general equilibrium environment. Specifically, assuming that firms face an up-front, sunk cost of entering foreign markets and a smaller period-by-period continuation cost, they derive the discrete entry and exit ...
Working Paper
Establishment heterogeneity, exporter dynamics, and the effects of trade liberalization
The authors study the effects of tariffs in a dynamic variation of the Melitz (2003) model, a monopolistically competitive model with heterogeneity in productivity across establishments and fixed costs of exporting. With fixed costs of starting to export that are on average 3.7 times as large as the costs incurred to continue as an exporter, the model can match both the size distribution of exporters and annual transition in and out of exporting among US manufacturing establishments. The authors find that the tariff equivalent of these fixed costs is nearly 30 percentage points. They use the ...
Working Paper
Trade wedges, inventories, and international business cycles
The large, persistent fluctuations in international trade that cannot be explained in standard models by changes in expenditures and relative prices are often attributed to trade wedges. We show that these trade wedges can reflect the decisions of importers to change their inventory holdings. We find that a two-country model of international business cycles with an inventory management decision can generate trade flows and wedges consistent with the data. Moreover, matching trade flows alters the international transmission of business cycles. Specifically, real net exports become ...
Working Paper
Violating purchasing power parity.
This paper demonstrates that deviations from the law of one price are an important source of violations of absolute PPP across countries. Using highly disaggregated U.S. export data, we document evidence of systematic international price discrimination based on the local wage of consumers in the destination market. We show that most violations from absolute PPP can also be explained by international differences in wages. We find very little additional explanation is due to differences in income per capita. Developing and calibrating a model of pricing-to-market based on search frictions and ...
Working Paper
Microeconomic uncertainty, international trade, and aggregate fluctuations
The extent and direction of causation between micro volatility and business cycles are debated. We examine, empirically and theoretically, the source and effects of fluctuations in the dispersion of producer-level sales and production over the business cycle. On the theoretical side, we study the expect of exogenous first- and second-moment shocks to producer-level productivity in a two-country DSGE model with heterogeneous producers and an endogenous dynamic export participation decision. First-moment shocks cause endogenous fluctuations in producer-level dispersion by reallocating ...
Working Paper
Export dynamics in large devaluations
We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, ...
Working Paper
Export dynamics in large devaluations
We study the source and consequences of sluggish export dynamics in emerging markets following large devaluations. We document two main features of exports that are puzzling for standard trade models. First, given the change in relative prices, exports tend to grow gradually following a devaluation. Second, high interest rates tend to suppress exports. To address these features of export dynamics, we embed a model of endogenous export participation due to sunk and per period export costs into an otherwise standard small open economy. In response to shocks to productivity, the interest rate, ...
Journal Article
Why are goods so cheap in some countries?
Looking around the world, we observe substantial differences across countries in prices for most goods. These price differences also tend to be positively correlated with income differences, so that citizens of high-income countries tend to pay more for the same goods than citizens in low-income countries. In ?Why Are Goods So Cheap in Some Countries?,? George Alessandria and Joseph Kaboski summarize some of the evidence related to the big price differences across countries for a broad set of goods. They then discuss the relationship between prices and income levels and some possible ...
Working Paper
Trade adjustment dynamics and the welfare gains from trade
We build a micro-founded two-country dynamic general equilibrium model in which trade responds more to a cut in tariffs in the long run than in the short run. The model introduces a time element to the fixed-variable cost trade-off in a heterogeneous producer trade model. Thus, the dynamics of aggregate trade adjustment arise from producer-level decisions to invest in lowering their future variable export costs. The model is calibrated to match salient features of new exporter growth and provides a new estimate of the exporting technology. At the micro level, we find that new exporters ...
Working Paper
Trade and the (dis)incentive to reform labor markets: the case of reform in the European Union.
In a closed economy general equilibrium model, Hopenhayn and Rogerson (1993) find large welfare gains to removing firing restrictions. We explore the extent to which international trade alters this result. When economies trade, labor market policies in one country spill over to other countries through a change in the terms of trade. This reduces the incentive to reform labor markets. In a policy game over firing taxes between countries, we find that countries optimally choose positive levels of firing taxes. A coordinated elimination of firing taxes yields considerable benefits. This insight ...