Goods-Market Frictions and International Trade

Pawel Krolikowski and Andrew McCallum

No 16-35R, Working Papers from Federal Reserve Bank of Cleveland

Abstract: We add goods-market frictions to a general equilibrium dynamic model with heterogeneous exporting producers and identical importing retailers. Our tractable framework leads to endogenously unmatched producers, which attenuate welfare responses to foreign shocks but increase the trade elasticity relative to a model without search costs. Search frictions are quantitatively important in our calibration, attenuating welfare responses to tariffs by 40 percent and increasing the trade elasticity by 50 percent. Eliminating search costs raises welfare by 1 percent and increasing them by only a few dollars has the same effects on welfare and trade flows as a 10 percent tariff.

Keywords: Trade; Frictions (search for similar items in EconPapers)
JEL-codes: D83 F12 (search for similar items in EconPapers)
Pages: 113 pages
Date: 2016-12-23
Note: Revision of Working Paper 16-35 originally published in December of 2016
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Citations: View citations in EconPapers (6)

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https://doi.org/10.26509/frbc-wp-201635r Full text (text/html)

Related works:
Journal Article: Goods-market frictions and international trade (2021)
Working Paper: Goods-Market Frictions and International Trade (2020)
Working Paper: Goods-Market Frictions and International Trade (2019)
Working Paper: Goods-Market Frictions and International Trade (2017)
Working Paper: Goods-Market Frictions and International Trade (2017)
Working Paper: Goods-Market Frictions and International Trade (2016)
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DOI: 10.26509/frbc-wp-201635r

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