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

  • Lilia Cavallari


    (University of Rome 3)

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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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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  1. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February.
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  4. Alan M. Taylor & Paul Bergin & Reuven Glick, 2005. "Productivity, Tradability, and the Long-Run Price Puzzle," Working Papers 511, University of California, Davis, Department of Economics.
  5. 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.
  6. Jonathan David Ostry & Carmen Reinhart, 1991. "Private Saving and Terms of Trade Shocks: Evidence From Developing Countries," IMF Working Papers 91/100, International Monetary Fund.
  7. Maurice Obstfeld & Kenneth Rogoff & Ben Bernanke & Kenneth Rogoff, . "The Six Major Puzzles in International Macroeconomics: Is there a Common Cause?," Working Paper 32326, Harvard University OpenScholar.
  8. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, MIT Press, vol. 120(3), pages 865-915, August.
  9. Campa, José Manuel & Goldberg, Linda S., 2004. "Exchange Rate Pass-Through into Import Prices," CEPR Discussion Papers 4391, C.E.P.R. Discussion Papers.
  10. Vivien Lewis, 2006. "Macroeconomic fluctuations and firm entry : theory and evidence," Working Paper Research 103, National Bank of Belgium.
  11. 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.
  12. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
  13. Paul R. Bergin & Reuven Glick, 2003. "Endogenous Tradability and Macroeconomic Implications," NBER Working Papers 9739, National Bureau of Economic Research, Inc.
  14. Corsetti, Giancarlo & Martin, Philippe & Pesenti, Paolo, 2008. "Varieties and the Transfer Problem: the Extensive Margin of Current Account Adjustment," CEPR Discussion Papers 6660, C.E.P.R. Discussion Papers.
  15. Russ, Katheryn, 2004. "The Endogeneity of the Exchange Rate as a Determinant of FDI: A Model of Money, Entry, and Multinational Firms," Santa Cruz Department of Economics, Working Paper Series qt9xr4f238, Department of Economics, UC Santa Cruz.
  16. 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.
  17. 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.
  18. Andrew B. Bernard & J. Bradford Jensen, 2000. "Exporting and Productivity," Working Papers 00-07, Center for Economic Studies, U.S. Census Bureau.
  19. 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.
  20. Helpman, Elhanan, 2006. "Trade, FDI and the Organization of Firms," CEPR Discussion Papers 5589, C.E.P.R. Discussion Papers.
  21. Philip R. Lane & Gian Maria Milesi-Ferretti, 2005. "Financial Globalisation and Exchange Rates," The Institute for International Integration Studies Discussion Paper Series iiisdp044, IIIS.
  22. Pinelopi K. Goldberg & Michael M. Knetter, 1996. "Goods Prices and Exchange Rates: What Have We Learned?," NBER Working Papers 5862, National Bureau of Economic Research, Inc.
  23. Kenneth Rogoff & William Brainard & George Perry, . "Global Current Account Imbalances and Exchange Rate Adjustments," Working Paper 33687, Harvard University OpenScholar.
  24. Bergin, Paul R. & Corsetti, Giancarlo, 2008. "The extensive margin and monetary policy," Journal of Monetary Economics, Elsevier, vol. 55(7), pages 1222-1237, October.
  25. Reinhart, Carmen & Ostry, Jonathan, 1992. "Saving and Terms of Trade Shocks: Evidence from Developing Countries," MPRA Paper 6976, University Library of Munich, Germany.
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