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Goods-Market Frictions and International Trade

Pawel Krolikowski () and Andrew McCallum ()

No 201635R2, 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; Search; constrained optimization; welfare (search for similar items in EconPapers)
JEL-codes: C61 D83 F12 (search for similar items in EconPapers)
Pages: 115 pages
Date: 2019-08-01
New Economics Papers: this item is included in nep-dge, nep-int and nep-ore
Note: This is the second revision of the paper. The first version was published in December 2016 and the second version in September 2018.
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https://doi.org/10.26509/frbc-wp-201635r2 Full text (text/html)

Related works:
Working Paper: Goods-Market Frictions and International Trade (2020) Downloads
Working Paper: Goods-Market Frictions and International Trade (2017) Downloads
Working Paper: Goods-Market Frictions and International Trade (2017) Downloads
Working Paper: Goods-Market Frictions and International Trade (2016) Downloads
Working Paper: Goods-Market Frictions and International Trade (2016) Downloads
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DOI: 10.26509/frbc-wp-201635r2

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