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Endogenous tradability and some macroeconomic implications

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  • Bergin, Paul R.
  • Glick, Reuven

Abstract

While nontraded goods play an important role in many open economy macroeconomic models, these models have difficulty explaining the low volatility in the relative price of nontraded goods. In contrast to macroeconomic convention, this paper argues that the share of nontraded goods is endogenous, a time-varying product of macroeconomic shocks and trade costs that are heterogeneous across goods. A simple open economy model demonstrates that trade cost heterogeneity and a time-varying margin of tradedness dramatically reduces the volatility of nontraded prices. This also reduces the ability of real exchange rate adjustments to dampen current account imbalances.

Suggested Citation

  • Bergin, Paul R. & Glick, Reuven, 2009. "Endogenous tradability and some macroeconomic implications," Journal of Monetary Economics, Elsevier, vol. 56(8), pages 1086-1095, November.
  • Handle: RePEc:eee:moneco:v:56:y:2009:i:8:p:1086-1095
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    Cited by:

    1. Kano, Kazuko & Kano, Takashi & Takechi, Kazutaka, 2013. "Exaggerated death of distance: Revisiting distance effects on regional price dispersions," Journal of International Economics, Elsevier, vol. 90(2), pages 403-413.
    2. Auray, Stéphane & Eyquem, Aurélien & Ma, Xiaofei, 2017. "Competitive tax reforms in a monetary union with endogenous entry and tradability," European Economic Review, Elsevier, vol. 98(C), pages 126-143.
    3. Ricardo Reyes-Heroles, 2017. "The Role of Trade Costs in the Surge of Trade Imbalances," 2017 Meeting Papers 212, Society for Economic Dynamics.
    4. Naknoi, Kanda, 2008. "Real exchange rate fluctuations, endogenous tradability and exchange rate regimes," Journal of Monetary Economics, Elsevier, vol. 55(3), pages 645-663, April.
    5. Hernández Marco A., 2015. "Endogenous Trade, Nontraded Goods and Real Exchange Rate Variations," Working Papers 2015-07, Banco de México.
    6. Rod Tyers & Ying Zhang, 2014. "Real exchange rate determination and the China puzzle," Asian-Pacific Economic Literature, Asia Pacific School of Economics and Government, The Australian National University, vol. 28(2), pages 1-32, November.
    7. Rafael A Portillo & Luis-Felipe Zanna, 2015. "On the First-Round Effects of International Food Price Shocks; the Role of the Asset Market Structure," IMF Working Papers 15/33, International Monetary Fund.
    8. Cacciatore, Matteo & Fiori, Giuseppe & Ghironi, Fabio, 2015. "The domestic and international effects of euro area market reforms," Research in Economics, Elsevier, vol. 69(4), pages 555-581.
    9. Oladi, Reza & Beladi, Hamid, 2010. "On technical progress and the boundary of non-traded goods," Mathematical Social Sciences, Elsevier, vol. 60(3), pages 204-209, November.
    10. Gabriel Felbermayr & Gilbert Spiegel, 2014. "A Simple Theory of Trade, Finance and Firm Dynamics," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 253-274, May.
    11. Benedikt Heid, 2014. "Essays on International Trade and Development," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 55, June.
    12. Dudley Cooke, 2010. "Monetary Policy and Trade Globalization," Working Papers 042010, Hong Kong Institute for Monetary Research.

    More about this item

    Keywords

    Nontraded goods Trade cost Heterogeneity Relative prices;

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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