Novy, Dennis (2010) Trade costs and the open macroeconomy. Scandinavian Journal of Economics, Vol.112 (No.3). pp. 514-545. doi:10.1111/j.1467-9442.2010.01612.x ISSN 0347-0520.

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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 allows for different degrees of exchange rate pass-through. Trade costs are shown to create an endogenous home bias in consumption and the model performs well in matching empirical trade shares for OECD countries. In addition, trade costs reduce cross-country output and consumption correlations, and they magnify exchange rate volatility. Trade costs turn a monetary expansion into a beggar-thy-neighbor policy.

Item Type:	Journal Article
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HF Commerce H Social Sciences > HG Finance
Divisions:	Faculty of Social Sciences > Economics
Library of Congress Subject Headings (LCSH):	Foreign exchange rates, Consumption (Economics), International trade, Macroeconomics
Journal or Publication Title:	Scandinavian Journal of Economics
Publisher:	Wiley-Blackwell Publishing, Inc.
ISSN:	0347-0520
Official Date:	September 2010
Dates:	Date Event September 2010 Published
Volume:	Vol.112
Number:	No.3
Number of Pages:	32
Page Range:	pp. 514-545
DOI:	10.1111/j.1467-9442.2010.01612.x
Status:	Peer Reviewed
Publication Status:	Published
Funder:	Economic and Social Research Council (Great Britain) (ESRC)
Grant number:	RES-000-22-3112 (ESRC)

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