International Trade and Macroeconomic Dynamics with Heterogeneous Firms

No 599, Boston College Working Papers in Economics from Boston College Department of Economics

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 Harrod-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.

Keywords: endogenous non-tradedness; entry; Harrod-Balassa-Samuelson effect; heterogenous producers; international business cycles; persistence; real exchange rate dynamics (search for similar items in EconPapers)
JEL-codes: F12 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: Written 2004-05-23
View list of references View citations in EconPapers

Downloads: (external link)
http://fmwww.bc.edu/EC-P/WP599.pdf main text (application/pdf)
http://fmwww.bc.edu/EC-P/WP599ta.pdf technical appendix (application/pdf)

Related works:
Working Paper: International Trade and Macroeconomic Dynamics with Heterogeneous Firms (2004)
Working Paper: International Trade and Macroeconomic Dynamics with Heteroegenous Firms (2004)
Working Paper: International Trade and Macroeconomic Dynamics with Heterogeneous Firms (2004)
Journal Article: International Trade and Macroeconomic Dynamics with Heterogeneous Firms (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Boston College Working Papers in Economics from Boston College Department of Economics
Address: Boston College, 140 Commonwealth Avenue, Chestnut Hill MA 02467 USA
Contact information at EDIRC.
Series data maintained by Christopher F Baum ().