Varieties and imbalances: the extensive margins of the current account adjustment

Philippe Martin, Paolo Pesenti and Giancarlo Corsetti

No 605, 2008 Meeting Papers from Society for Economic Dynamics

Abstract: are accounted for, relative to traditional macromodels. We also find that, for reasonable parameterizations, consumption and employment (hence welfare) are not highly sensitive to product differentiation, and change little regardless of whether adjustment occurs through movements in relative prices or quantities. This result warns against interpreting the size of real depreciation associated with trade rebalancing as an index of macroeconomic distress.

Date: 2008
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