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Comments on Obstfeld and Rogoff's "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?"

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  • Charles Engel

Abstract

The paper offers comments on Obstfeld and Rogoff (2000). The comments primarily focus on three issues: (a) How do we reconcile the numerical examples of OR, which show quantitatively plausible resolutions to the major puzzles arising from costs of trade, with previous studies that have found trade costs do not get us very far? (b) Does the solution proposed by OR solve the puzzles at the expense of introducing new puzzles? That is, does their solution have counterfactual implications for other economic relationships? (The prime example of what I have in mind here is what OR call the Backus-Smith puzzle'.) (c) Some of the problems connected with points (a) and (b) can be rectified by moving away from the assumption of complete asset markets. But, then, how do we assess how much of the solution to the puzzle is coming from trade costs versus capital-market imperfections?

Suggested Citation

  • Charles Engel, 2000. "Comments on Obstfeld and Rogoff's "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?"," NBER Working Papers 7818, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:7818
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    1. Martin D.D. Evans & Richard K. Lyons, 2017. "Order Flow and Exchange Rate Dynamics," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 6, pages 247-290, World Scientific Publishing Co. Pte. Ltd..
    2. Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, December.
    3. Backus, David K. & Smith, Gregor W., 1993. "Consumption and real exchange rates in dynamic economies with non-traded goods," Journal of International Economics, Elsevier, vol. 35(3-4), pages 297-316, November.
    4. Kollmann, Robert, 1995. "Consumption, real exchange rates and the structure of international asset markets," Journal of International Money and Finance, Elsevier, vol. 14(2), pages 191-211, April.
    5. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    6. Olivier Jeanne & Andrew K. Rose, 2002. "Noise Trading and Exchange Rate Regimes," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 537-569.
    7. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-775, August.
    8. Carolyn L. Evans, 2003. "The Economic Significance of National Border Effects," American Economic Review, American Economic Association, vol. 93(4), pages 1291-1312, September.
    9. Betts, Caroline & Devereux, Michael B., 1996. "The exchange rate in a model of pricing-to-market," European Economic Review, Elsevier, vol. 40(3-5), pages 1007-1021, April.
    10. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
    11. Finn E. Kydland (ed.), 1995. "Business Cycle Theory," Books, Edward Elgar Publishing, number 565.
    12. Betts, Caroline & Devereux, Michael B., 2000. "Erratum to "Exchange rate dynamics in a model of pricing-to-market": [Journal of International Economics 50 (2000) 214-244]," Journal of International Economics, Elsevier, vol. 52(1), pages 207-208, October.
    13. Betts, Caroline & Devereux, Michael B., 2000. "Exchange rate dynamics in a model of pricing-to-market," Journal of International Economics, Elsevier, vol. 50(1), pages 215-244, February.
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    Cited by:

    1. Heiwai Tang & Yifan Zhang, 2012. "Exchange Rates and the Margins of Trade: Evidence from Chinese Exporters," CESifo Economic Studies, CESifo Group, vol. 58(4), pages 671-702, December.
    2. Stefan Ried, 2009. "Putting Up a Good Fight: The Galí-Monacelli Model versus “The Six Major Puzzles in International Macroeconomicsâ€," SFB 649 Discussion Papers SFB649DP2009-020, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    3. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "International Risk Sharing and the Transmission of Productivity Shocks," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 75(2), pages 443-473.
    4. Agnieszka Stazka, 2006. "Sources of Real Exchange Rate Fluctuations in Central and Eastern Europe – Temporary or Permanent?," CESifo Working Paper Series 1876, CESifo.
    5. Kim, Hyeongwoo, 2012. "VECM estimations of the PPP reversion rate revisited: The conventional role of relative price adjustment restored," Journal of Macroeconomics, Elsevier, vol. 34(1), pages 223-238.
    6. Fernando Lorenzo & Rosa Osimani & Patricio Valenzuela, 2005. "The Elasticity of Substitution in Demand for Non-Tradable Goods in Uruguay," Research Department Publications 3171, Inter-American Development Bank, Research Department.
    7. Karabarbounis, Loukas, 2010. "Labor wedges and open economy puzzles," MPRA Paper 31370, University Library of Munich, Germany.
    8. Luke Willard, 2007. "Trade Costs and Some Puzzles in International Macroeconomics," RBA Research Discussion Papers rdp2007-10, Reserve Bank of Australia.
    9. Timur Han Gur & Lutfi Erden & Ibrahim Ozkan, 2011. "An Empirical Investigation on the Determinants of the Saving-Investment Interaction," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 343-353, September.
    10. Eric van Wincoop & Francis E. Warnock, 2006. "Is Home Bias in Assets Related to Home Bias in Goods?," NBER Working Papers 12728, National Bureau of Economic Research, Inc.
    11. Thomas Mathä, 2005. "Der Euro und Weiterführende Regionale Preiskonvergenz? Resultate aus der ‘Groß‐Region’ um Luxemburg," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 6(1), pages 57-70, February.
    12. Fernando Lorenzo & Rosa Osimani & Patricio Valenzuela, 2005. "Elasticidad de la sustitución en la demanda de bienes no transables en Uruguay," Research Department Publications 3172, Inter-American Development Bank, Research Department.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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