International Trade and Macroeconomic Dynamics with Heterogeneous FirmsFabio Ghironi () and Marc J. Melitz The Quarterly Journal of Economics, 2005, vol. 120, issue 3, pages 865-915 Abstract: We develop a stochastic, general equilibrium, two-country model of trade and macroeconomic dynamics. Productivity differs across individual, monopolistically competitive firms in each country. Firms face a sunk entry cost in the domestic market and both fixed and per-unit export costs. Only relatively more productive firms export. Exogenous shocks to aggregate productivity and entry or trade costs induce firms to enter and exit both their domestic and export markets, thus altering the composition of consumption baskets across countries over time. In a world of flexible prices, our model generates endogenously persistent deviations from PPP that would not exist absent our microeconomic structure with heterogeneous firms. It provides an endogenous, microfounded explanation for a Harrods-Balassa-Samuelson effect in response to aggregate productivity differentials and deregulation. Finally, the model successfully matches several moments of U. S. and international business cycles. © 2005 MIT Press Date: 2005 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Ordering information: This journal article can be ordered from Access Statistics for this article The Quarterly Journal of Economics is edited by Robert J. Barro, Edward L. Glaeser and Lawrence F. Katz More articles in The Quarterly Journal of Economics from MIT Press |
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