Endogenous tradability and some macroeconomic implications
Paul Bergin and
Reuven Glick ()
Journal of Monetary Economics, 2009, vol. 56, issue 8, 1086-1095
While nontraded goods play an important role in many open economy macroeconomic models, these models have difficulty explaining the low volatility in the relative price of nontraded goods. In contrast to macroeconomic convention, this paper argues that the share of nontraded goods is endogenous, a time-varying product of macroeconomic shocks and trade costs that are heterogeneous across goods. A simple open economy model demonstrates that trade cost heterogeneity and a time-varying margin of tradedness dramatically reduces the volatility of nontraded prices. This also reduces the ability of real exchange rate adjustments to dampen current account imbalances.
Keywords: Nontraded; goods; Trade; cost; Heterogeneity; Relative; prices (search for similar items in EconPapers)
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Chapter: Endogenous Tradability and Some Macroeconomic Implications (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:56:y:2009:i:8:p:1086-1095
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