Author: Mr.Kanda Naknoi
Publisher: International Monetary Fund
Published: 2003-03-01
Total Pages: 50
ISBN-13: 145184753X
DOWNLOAD EBOOKThis paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, etc.). The model is a extension of Obstfeld and Rogoff (1995). Naturally, a reduction in trade costs leads to more market integration, as the relative price of foreign goods falls and households increase their consumption of imported goods. In addition, with more market integration, the model predicts that the variability of the real exchange rate should fall, while the variability of the trade balance should increase. Trade costs have ambiguous effects on the volatility of other macro variables, such as income and consumption. Finally, we present some empirical findings that provide mixed support for the model's predictions.
Book Synopsis Trade Costs, Market Integration, and Macroeconomic Volatility by : Mr.Kanda Naknoi
Download or read book Trade Costs, Market Integration, and Macroeconomic Volatility written by Mr.Kanda Naknoi and published by International Monetary Fund. This book was released on 2003-03-01 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, etc.). The model is a extension of Obstfeld and Rogoff (1995). Naturally, a reduction in trade costs leads to more market integration, as the relative price of foreign goods falls and households increase their consumption of imported goods. In addition, with more market integration, the model predicts that the variability of the real exchange rate should fall, while the variability of the trade balance should increase. Trade costs have ambiguous effects on the volatility of other macro variables, such as income and consumption. Finally, we present some empirical findings that provide mixed support for the model's predictions.