Endogenous Tradability andMacroeconomic Implications

Paul Bergin and Reuven Glick

No 277, Working Papers from University of California, Davis, Department of Economics

Abstract: This paper advocates a new way of thinking about goods trade in an open economy macromodel. It develops a simple method for analyzing trade costs that are heterogeneous among acontinuum of goods, and it explores how these costs determine the endogenous decision by aseller of whether to trade a good internationally. This way of thinking offers new insightsinto international market integration and the behavior of international relative prices. As oneexample, it provides a natural explanation for a prominent and controversial puzzle ininternational macroeconomics regarding the surprisingly low degree of volatility in therelative price of nontraded goods. Because tradedness is an endogenous decision, the good onthe margin forms a link holding together the prices of traded and nontraded goods. The papergoes on to find that endogenizing trade has implications for other basic macroeconomicissues.

Keywords: endogenizing trade; open economy macroeconomics (search for similar items in EconPapers)
JEL-codes: F4 (search for similar items in EconPapers)
Pages: 42
Date: 2005-06-21
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Endogenous Tradability and Macroeconomic Implications (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cda:wpaper:277

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