Trade Costs and Some Puzzles in International Macroeconomics

Luke Willard

RBA Research Discussion Papers from Reserve Bank of Australia

Abstract: Obstfeld and Rogoff (2001) argue that trade costs provide at least part of the explanation for a number of puzzles in international macroeconomics. Using data on imports to the United States from developed economies, this paper investigates whether trade costs are associated with correlations associated with three of these puzzles: the Feldstein-Horioka saving-investment puzzle; the purchasing power parity real exchange rate persistence puzzle; and the international consumption correlation puzzle. In general there is some evidence in support of Obstfeld and Rogoff’s argument, though the parameters are often imprecisely estimated.

Keywords: consumption smoothing; Feldstein-Horioka puzzle; purchasing power puzzle; trade (search for similar items in EconPapers)
JEL-codes: F00 F3 F4 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-cba and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:rba:rbardp:rdp2007-10

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