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Trade with Nominal Rigidities: Understanding the Unemployment and Welfare Effects of the China Shock

Andres Rodriguez-Clare, Mauricio Ulate and Jose Vasquez

No 27905, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a dynamic quantitative trade and migration model that incorporates downward nominal wage rigidities and show how this framework can generate changes in unemployment and labor force participation that match those uncovered by the empirical literature studying the “China shock.” We find that the China shock leads to average welfare increases in most U.S. states, including many that experience elevated unemployment during the transition. However, nominal rigidities reduce the overall U.S. gains by more than one fourth. In addition, there are seven states that experience welfare losses in the presence of downward nominal wage rigidity that would have experienced gains without it.

JEL-codes: F10 F16 F66 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-cna and nep-dge
Note: ITI
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Citations: View citations in EconPapers (11)

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Working Paper: Trade with Nominal Rigidities: Understanding the Unemployment and Welfare Effects of the China Shock (2022) Downloads
Working Paper: Trade with Nominal Rigidities: Understanding the Unemployment and Welfare Effects of the China Shock (2022) Downloads
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