IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Varieties and the Transfer Problem: The Extensive Margin of Current Account Adjustment

  • Giancarlo Corsetti
  • Philippe Martin
  • Paolo Pesenti

Most analyses of the macroeconomic adjustment required to correct global imbalances ignore net exports of new varieties of goods and services and do not account for firms' entry in the product market. In this paper we revisit the macroeconomics of trade adjustment in the context of the classic 'transfer problem,' using a model where the set of exportables, importables and nontraded goods is endogenous. We show that exchange rate movements associated with adjustment are dramatically lower when the above features are accounted for, relative to traditional macromodels. We also find that, for reasonable parameterizations, consumption and employment (hence welfare) are not highly sensitive to product differentiation, and change little regardless of whether adjustment occurs through movements in relative prices or quantities. This result warns against interpreting the size of real depreciation associated with trade rebalancing as an index of macroeconomic distress.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13795.

in new window

Date of creation: Feb 2008
Date of revision:
Handle: RePEc:nbr:nberwo:13795
Note: IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Phone: 617-868-3900
Web page:

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mark Gertler & Lars Svensson & Andrea Ferrero, 2008. "Current Account Dynamics and Monetary Policy," 2008 Meeting Papers 359, Society for Economic Dynamics.
  2. Browning, Martin & Hansen, Lars Peter & Heckman, James J., 1999. "Micro data and general equilibrium models," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 8, pages 543-633 Elsevier.
  3. Caroline Freund & Frank Warnock, 2007. "Current Account Deficits in Industrial Countries: The Bigger They Are, The Harder They Fall?," NBER Chapters, in: G7 Current Account Imbalances: Sustainability and Adjustment, pages 133-168 National Bureau of Economic Research, Inc.
  4. Paul R. Bergin & Reuven Glick, 2005. "Endogenous nontradability and macroeconomic implications," Working Paper Series 2003-09, Federal Reserve Bank of San Francisco.
  5. Joseph Altonji, 1984. "Intertemporal Substitution in Labor Supply: Evidence from Micro Data," Working Papers 562, Princeton University, Department of Economics, Industrial Relations Section..
  6. Christian Broda & David E. Weinstein, 2004. "Globalization and the Gains from Variety," NBER Working Papers 10314, National Bureau of Economic Research, Inc.
  7. Paul Krugman, 1988. "Differences In Income Elasticities and Trends in Real Exchange Rates," NBER Working Papers 2761, National Bureau of Economic Research, Inc.
  8. Ricardo J Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2006. "An equilibrum model of "global imbalances" and low interest rates," BIS Working Papers 222, Bank for International Settlements.
  9. Fratzscher, Marcel & Juvenal, Luciana & Sarno, Lucio, 2010. "Asset prices, exchange rates and the current account," European Economic Review, Elsevier, vol. 54(5), pages 643-658, July.
  10. Maurice Obstfeld & Kenneth Rogoff, 2004. "The Unsustainable US Current Account Position Revisited," NBER Working Papers 10869, National Bureau of Economic Research, Inc.
  11. Hamid Faruqee & Douglas Laxton & Dirk Muir & Paolo Pesenti, 2005. "Smooth Landing or Crash? Model-Based Scenarios of Global Current Account Rebalancing," NBER Working Papers 11583, National Bureau of Economic Research, Inc.
  12. Richard Rogerson, 2010. "Indivisible Labor, Lotteries and Equilibrium," Levine's Working Paper Archive 250, David K. Levine.
  13. Shang-Jin Wei & Jiandong Ju, 2008. "Current Account Adjustment: Some New Theory and Evidence," 2008 Meeting Papers 851, Society for Economic Dynamics.
  14. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Journal of Economic Literature, American Economic Association, vol. 42(3), pages 691-751, September.
  15. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
  16. Philip R. Lane & Gian Maria Milesi-Ferretti, 2000. "The Transfer Problem Revisited: Net Foreign Assets and Real Exchange Rates," Working Papers 062000, Hong Kong Institute for Monetary Research.
  17. repec:cup:cbooks:9780521118729 is not listed on IDEAS
  18. Jonathan Eaton & Robert Dekle & Samuel Kortum, 2007. "Unbalanced Trade," American Economic Review, American Economic Association, vol. 97(2), pages 351-355, May.
  19. Kei-Mu Yi, 2003. "Can Vertical Specialization Explain the Growth of World Trade?," Journal of Political Economy, University of Chicago Press, vol. 111(1), pages 52-102, February.
  20. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
  21. Debaere, Peter & Mostashari, Shalah, 2005. "Do Tariffs Matter for the Extensive Margin of International Trade? An Empirical Analysis," CEPR Discussion Papers 5260, C.E.P.R. Discussion Papers.
  22. repec:cup:cbooks:9780521572149 is not listed on IDEAS
  23. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December.
  24. Mendoza, Enrique G & Quadrini, Vincenzo & Ríos-Rull, José-Víctor, 2007. "Financial Integration, Financial Deepness and Global Imbalances," CEPR Discussion Papers 6149, C.E.P.R. Discussion Papers.
  25. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  26. Paul R. Bergin & Reuven Glick, 2003. "Endogenous Tradability and Macroeconomic Implications," NBER Working Papers 9739, National Bureau of Economic Research, Inc.
  27. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2007. "Productivity, terms of trade and the `home market effect'," Journal of International Economics, Elsevier, vol. 73(1), pages 99-127, September.
  28. Christian Broda & David W. Weinstein, 2004. "Variety Growth and World Welfare," American Economic Review, American Economic Association, vol. 94(2), pages 139-144, May.
  29. Blundell, Richard & Macurdy, Thomas, 1999. "Labor supply: A review of alternative approaches," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 27, pages 1559-1695 Elsevier.
  30. Joseph E. Gagnon, 2007. "Productive Capacity, Product Varieties, and the Elasticities Approach to the Trade Balance," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 639-659, 09.
  31. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  32. Linghui Tang, 2006. "Communication Costs and Trade of Differentiated Goods," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 54-68, 02.
  33. Brakman, Steven & van Marrewijk, Charles, 1995. "Transfers, returns to scale, tied aid and monopolistic competition," Journal of Development Economics, Elsevier, vol. 47(2), pages 333-354, August.
  34. Heckman, James J & Macurdy, Thomas E, 1980. "A Life Cycle Model of Female Labour Supply," Review of Economic Studies, Wiley Blackwell, vol. 47(1), pages 47-74, January.
  35. Timothy J. Kehoe & Kim J. Ruhl, 2009. "How important is the new goods margin in international trade?," Staff Report 324, Federal Reserve Bank of Minneapolis.
  36. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:13795. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.