International Trade and Macroeconomic Dynamics with Heteroegenous Firms

Fabio Ghironi and Marc Melitz

No 4595, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 US and international business cycles.

Keywords: Entry; Harrod-balassa-samuelson effect; Heterogenous producers; Endogenous non-tradeness; International business cycles; Persistence; Real exchange rate dynamics (search for similar items in EconPapers)
JEL-codes: F12 F41 (search for similar items in EconPapers)
Date: 2004-09
New Economics Papers: this item is included in nep-dge
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://cepr.org/publications/DP4595 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

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

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4595

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4595

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().