Calculating the Equilibria of Heterogeneous-Firm Trade Models

Timothy Kehoe, Kim Ruhl and Pau Pujolas

No 436, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We develop a family of simple algoirthms for analytically calculating the interior equilibria of international trade models with monopolistic competition, heterogeneous firms, increasing returns to scale, and a homogeneous outside good. Variants of the methods handle models with costly entry and models with a fixed number of firms, even when countries are of different sizes, firms face heterogeneous fixed costs, and trade costs and the distributions of firm efficiency are different across countries. The methods reduce to inverting an n-by-n matrix, where n is the number of countries.

Date: 2019
New Economics Papers: this item is included in nep-bec
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