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Trade costs and the open macroeconomy
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Novy, Dennis (2006) Trade costs and the open macroeconomy. Working Paper. Coventry: University of Warwick, Department of Economics. Warwick economic research papers (No.778).
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
Trade costs are known to be a major obstacle to international economic integration. Following the approach of New Open Economy Macroeconomics, this paper explores the effects of international trade costs in a micro-founded general equilibrium model that also allows for pricing to market. Trade costs are shown to create an endogenous home bias in consumption and reduce cross-country consumption correlations. In addition, trade costs magnify exchange rate volatility in response to monetary shocks and typically turn a monetary expansion into a beggar-thy-neighbor policy. It is striking that trade costs generally lead to these results both under producer and local currency pricing.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HF Commerce | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | International trade, Price indexes, Foreign exchange rates, Macroeconomics, Consumption (Economics) | ||||
Series Name: | Warwick economic research papers | ||||
Publisher: | University of Warwick, Department of Economics | ||||
Place of Publication: | Coventry | ||||
Official Date: | 14 November 2006 | ||||
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Number: | No.778 | ||||
Number of Pages: | 36 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Access rights to Published version: | Open Access (Creative Commons) |
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