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Quantitative Trade Models: Developments and Challenges

Author

Listed:
  • Kehoe, Timothy J.

    (Federal Reserve Bank of Minneapolis)

  • Pujolas, Pau S.

    (McMaster University)

  • Rossbach, Jack

    (Georgetown University Qatar)

Abstract

Applied general equilibrium (AGE) models, which feature multiple countries or regions, multiple sectors, and input-output linkages across sectors in a Walrasian general equilibrium framework, have been the dominant tool for evaluating the impact of trade liberalization since the 1980s. We provide an overview of the historical development of AGE models and a guide as to how they are used to perform policy analysis. We then review and document shortcomings in the performance of AGE models in predicting the sectoral effects of past trade reforms, that is, we show that AGE models often perform poorly. We provide suggestive evidence that incorporating some of the recent advances in quantitative trade theory in AGE models can improve their predictive ability.

Suggested Citation

  • Kehoe, Timothy J. & Pujolas, Pau S. & Rossbach, Jack, 2016. "Quantitative Trade Models: Developments and Challenges," Staff Report 537, Federal Reserve Bank of Minneapolis.
  • Handle: RePEc:fip:fedmsr:537
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    Cited by:

    1. Diego Restuccia & Richard Rogerson, 2017. "The Causes and Costs of Misallocation," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 151-174, Summer.
    2. Scott French, 2017. "Comparative Advantage and Biased Gravity," Discussion Papers 2017-03, School of Economics, The University of New South Wales.
    3. repec:aea:jecper:v:31:y:2017:i:4:p:163-84 is not listed on IDEAS
    4. repec:oup:erevae:v:44:y:2017:i:4:p:592-633. is not listed on IDEAS
    5. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CESifo Working Paper Series 6668, CESifo Group Munich.
    6. Thomas Sampson, 2017. "Brexit: The Economics of International Disintegration," CEP Discussion Papers dp1499, Centre for Economic Performance, LSE.
    7. Sampson, Thomas, 2017. "Brexit: the economics of international disintegration," LSE Research Online Documents on Economics 86591, London School of Economics and Political Science, LSE Library.
    8. Kehoe, Timothy J. & Pujolas, Pau S. & Rossbach, Jack, 2018. "Improving the Analysis of Trade Policy," Economic Policy Paper 18-1, Federal Reserve Bank of Minneapolis.
    9. repec:bpj:pewipo:v:18:y:2017:i:1:p:32-55:n:2 is not listed on IDEAS

    More about this item

    Keywords

    Applied general equilibrium; Trade liberalization; Input-output linkages; Extensive margin;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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