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Search and Deliberation in International Exchange: Learning from Multinational Trade About Lags, Distance Effects, and Home Bias

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  • Subramanian Rangan
  • Robert Z. Lawrence

Abstract

This paper compares the responses of intra- and extra-firm trade to exchange rate changes. It does so both to inform the debate on whether these responses are qualitatively different and to improve understanding of the microfoundations of features of trade behavior such as long adjustment lags, the large impact of distance, and the presence of significant home bias. We argue that the informational problems posed by search (acts identifying potential exchange partners) and deliberation (acts assessing their reliability and trustworthiness) play a key role in explaining these features and suggest that multinationals should have advantages in overcoming these problems. Indeed we find that the responses of multinationals to exchange rate changes are both larger and more rapid.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7012.

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Date of creation: Mar 1999
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Handle: RePEc:nbr:nberwo:7012

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  1. Robert Z. Lawrence, 1990. "U.S. Current Account Adjustment: An Appraisal," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(2), pages 343-392.
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  17. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
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Cited by:
  1. Mark A. Planting & Jiemin Guo, 2002. "Increasing the Timeliness of U.S. Annual I-O Accounts," BEA Papers 0022, Bureau of Economic Analysis.
  2. Alexandra Lai & Oana Secrieru, 2006. "Multinationals and Exchange Rate Pass-Through," Working Papers 06-30, Bank of Canada.
  3. Giovanni P. Olivei, 2002. "Exchange rates and the prices of manufacturing products imported into the United States," New England Economic Review, Federal Reserve Bank of Boston, issue Q 1, pages 3 - 18.

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