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Export And Foreign Direct Investments In An Endogenous-Entry Model With Real And Nominal Uncertainty

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  • Lilia Cavallari

    ()
    (University of Rome 3)

Abstract

Drawing on a tractable DSGE model with nominal rigidity, this paper studies the implica- tions of ?rms?entry in domestic and foreign markets for the international business cycle. The paper shows that the decision to enter a new market as well as the choice whether to invest at home or abroad depend on global monetary and productivity conditions. I ?nd that a domes- tic monetary expansion might favor or deter start-up investments, depending on whether the potential entrant is a national or a multinational ?rm. Moreover, a structural policy change, as an increase in the degree of monetary stabilization, has a positive impact on trend investments in all sectors. Firms?dynamics, in turn, ampli?es consumption and employment spillovers in the world economy. I stress that this may have non-negligible consequences for welfare.

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File URL: http://host.uniroma3.it/centri/crei/pubblicazioni/workingpapers2009/CREI_02_2009.pdf
File Function: First version, 2009
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Bibliographic Info

Paper provided by CREI Università degli Studi Roma Tre in its series Working Papers with number 0209.

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Length: 27 pages
Date of creation: 2009
Date of revision: 2009
Handle: RePEc:rcr:wpaper:02_09

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Related research

Keywords: multinational ?rms; endogenous entry; monetary policy; FDI;

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References

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  1. Ghironi, Fabio & Melitz, Marc, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," Scholarly Articles 3228377, Harvard University Department of Economics.
  2. Bergin, Paul R & Glick, Reuven & Taylor, Alan M, 2004. "Productivity, Tradability and the Long-Run Price Puzzle," CEPR Discussion Papers 4494, C.E.P.R. Discussion Papers.
  3. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers 4745, C.E.P.R. Discussion Papers.
  4. Parsley, David C. & Wei, Shang-Jin, 2001. "Explaining the border effect: the role of exchange rate variability, shipping costs, and geography," Journal of International Economics, Elsevier, vol. 55(1), pages 87-105, October.
  5. Jonathan D. Ostry & Carmen M. Reinhart, 1992. "Private Saving and Terms of Trade Shocks: Evidence from Developing Countries," IMF Staff Papers, Palgrave Macmillan, vol. 39(3), pages 495-517, September.
  6. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  7. Engel, C., 1996. "Accounting for U.S. Real Exchange Rate Changes," Discussion Papers in Economics at the University of Washington 96-02, Department of Economics at the University of Washington.
  8. Clarida, Richard & Galí, Jordi & Gertler, Mark, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," CEPR Discussion Papers 2139, C.E.P.R. Discussion Papers.
  9. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February.
  10. Elhanan Helpman, 2006. "Trade, FDI, and the Organization of Firms," Harvard Institute of Economic Research Working Papers 2118, Harvard - Institute of Economic Research.
  11. Paul R. Bergin & Reuven Glick, 2005. "Tradability, Productivity, and Understanding International Economic Integration," NBER Working Papers 11637, National Bureau of Economic Research, Inc.
  12. José Manuel Campa & Linda S. Goldberg, 2005. "Exchange Rate Pass-Through into Import Prices," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 679-690, November.
  13. Paul Bergin & Reuven Glick, 2005. "Endogenous Tradability andMacroeconomic Implications," Working Papers 513, University of California, Davis, Department of Economics.
  14. Andrew B. Bernard & J. Bradford Jensen, 2000. "Exporting and Productivity," Working Papers 00-07, Center for Economic Studies, U.S. Census Bureau.
  15. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358 - 392.
  16. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Goods Prices and Exchange Rates: What Have We Learned?," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1243-1272, September.
  17. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  18. Reinhart, Carmen & Ostry, Jonathan, 1992. "Saving and Terms of Trade Shocks: Evidence from Developing Countries," MPRA Paper 6976, University Library of Munich, Germany.
  19. Cavallari Lilia, 2007. "A Macroeconomic Model of Entry with Exporters and Multinationals," The B.E. Journal of Macroeconomics, De Gruyter, vol. 7(1), pages 1-32, September.
  20. Giancarlo Corsetti & Philippe Martin & Paolo Pesenti, 2008. "Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment," NBER Working Papers 13795, National Bureau of Economic Research, Inc.
  21. Florin O. Bilbiie & Fabio Ghironi & Marc J. Melitz, 2008. "Monetary Policy and Business Cycles with Endogenous Entry and Product Variety," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 299-353 National Bureau of Economic Research, Inc.
  22. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  23. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  24. Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry: theory and evidence," Computing in Economics and Finance 2006 112, Society for Computational Economics.
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Citations

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Cited by:
  1. Paul R. Bergin & Giancarlo Corsetti, 2013. "International Competitiveness and Monetary Policy: Strategic Policy and Coordination with a Production Relocation Externality," NBER Working Papers 19356, National Bureau of Economic Research, Inc.
  2. Cooke, Dudley, 2014. "Monetary shocks, exchange rates, and the extensive margin of exports," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 128-145.
  3. Marta Arespa, 2013. "The intensive and the extensive margins: not only an international issue," Portuguese Economic Journal, Springer, vol. 12(1), pages 1-34, April.

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