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A comment on "The effect of a common currency on the volatility of the extensive margin of trade"

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  • Luís Alexandre Barbosa Guimarães

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    (Faculdade de Economia, Universidade do Porto)

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    Abstract

    In this paper I comment on Auray, Eyquem, and Pontineau (2012). I show that their introduction of sticky-prices into Ghironi \& Melitz (2005) framework is incorrect and generates a bias in simulation results. Additionally, I find that, by introducing sticky-prices into Ghironi \& Melitz (2005) framework in a correct way, the model is able to account for the empirical findings of Auray, Eyquem, and Pontineau (2012). Finally, I also find that if central banks target a data-consistent CPI inflation, results improve quantitatively.

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    File URL: http://www.fep.up.pt/investigacao/workingpapers/wp449.pdf
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    Bibliographic Info

    Paper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 449.

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    Length: 15 pages
    Date of creation: Mar 2012
    Date of revision:
    Handle: RePEc:por:fepwps:449

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    Related research

    Keywords: Pricing-to-market; Local currency pricing; Extensive Margin; Monetary Union; Monetary Policy;

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    1. Maurice Obstfeld and Kenneth Rogoff., 1999. "New Directions for Stochastic Open Economy Models," Center for International and Development Economics Research (CIDER) Working Papers C99-107, University of California at Berkeley.
    2. Auray, Stéphane & Eyquem, Aurélien & Poutineau, Jean-Christophe, 2012. "The effect of a common currency on the volatility of the extensive margin of trade," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1156-1179.
    3. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
    4. Rotemberg, Julio J, 1982. "Monopolistic Price Adjustment and Aggregate Output," Review of Economic Studies, Wiley Blackwell, vol. 49(4), pages 517-31, October.
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