The Shimer-Puzzle of International Trade: A Quantitative Analysis

Gabriel Felbermayr, Mario Larch, Wolfgang Lechthaler and Gabriel J. Felbermayr
Authors registered in the RePEc Author Service: Gabriel J Felbermayr

No 134, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: Recent theoretical literature studies how labor market reforms in one country can affect labor market outcomes in other countries, thereby rationalizing widely-held policy beliefs and empirical evidence. But what is the quantitative relevance of such spillover effects? This paper combines two recent workhorse models: the canonical search-and-matching framework and the heterogeneous firms international trade model. Qualitatively, the framework confirms that labor market reforms in one country benefit its trading partners, replicating the stylized facts. However, when wages are bargained flexibly, the model quantitatively underestimates the correlation of structural unemployment rates across countries. This mirrors the well-known finding by Shimer (2005) by which the standard search-and-matching model predicts too small fluctuations of unemployment rates over time. Introducing real wage rigidity remedies this problem.

JEL-codes: F11 F12 F16 J64 L11 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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