Template-Type: ReDIF-Paper 1.0
Author-Name: Paul Bergin
Author-Name-First: Paul
Author-Name-Last: Bergin
Author-Name: Reuven Glick
Author-Name-First: Reuven
Author-Name-Last: Glick
Author-Workplace-Name: Department of Economics, University of California Davis
Title: Endogenous Tradability andMacroeconomic Implications
Abstract: This paper advocates a new way of thinking about goods trade in an open economy macromodel. It develops a simple method for analyzing trade costs that are heterogeneous among acontinuum of goods, and it explores how these costs determine the endogenous decision by aseller of whether to trade a good internationally. This way of thinking offers new insightsinto international market integration and the behavior of international relative prices. As oneexample, it provides a natural explanation for a prominent and controversial puzzle ininternational macroeconomics regarding the surprisingly low degree of volatility in therelative price of nontraded goods. Because tradedness is an endogenous decision, the good onthe margin forms a link holding together the prices of traded and nontraded goods. The papergoes on to find that endogenizing trade has implications for other basic macroeconomicissues.
Length: 42
File-URL: https://repec.dss.ucdavis.edu/files/k5VGjNAbpVpWAekpE6k6ZgmY/05-13.pdf
File-Format: application/pdf
Number: 277
Classification-JEL: F4
KeyWords: endogenizing trade, open economy macroeconomics
Creation-Date: 20050621
Handle: RePEc:cda:wpaper:277