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Entry, Trade Costs and International Business Cycles

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  • Jose Ignacio Lopez

    (UCLA)

  • Roberto Fattal-Jaef

    (UCLA)

Abstract

important interaction between entry and investment, as the two can be used for consumption smoothing. Entry dampens the volatility of investment and helps the model to have a better fit for the second moments of all aggregate variables. Regarding prices, the model delivers a negative correlation between the ratio of relative consumption and the real exchange rate, reverting the so-called Backus-Smith Puzzle, but only under certain assumptions of how price indices are constructed. Given the novel results of the model, we explore the role of each intensive margin and find a strong complementarity between the two. Absent any, the model loses some of its nice features. Finally, we discuss how results vary under different financial structures. Our findings indicate that the degree of completeness in international financial markets matter for the micro dynamics of the model, even with low persistent shocks.

Suggested Citation

  • Jose Ignacio Lopez & Roberto Fattal-Jaef, 2010. "Entry, Trade Costs and International Business Cycles," 2010 Meeting Papers 522, Society for Economic Dynamics.
    • Handle: RePEc:red:sed010:522
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    Cited by:

    1. George Alessandria & Horag Choi, 2019. "Entry, Trade, and Exporting over the Cycle," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(S1), pages 83-126, December.
    2. Liao, Wei & Santacreu, Ana Maria, 2015. "The trade comovement puzzle and the margins of international trade," Journal of International Economics, Elsevier, vol. 96(2), pages 266-288.
    3. Masashige Hamano, 2013. "On business cycles of variety and quality," DEM Discussion Paper Series 13-21, Department of Economics at the University of Luxembourg.
    4. Ascari, Guido & Colciago, Andrea & Silvestrini, Riccardo, 2023. "Business dynamism, sectoral reallocation and productivity in a pandemic," European Economic Review, Elsevier, vol. 156(C).
    5. Francois de Soyres, 2016. "Trade and Interdependence in International Networks," 2016 Meeting Papers 157, Society for Economic Dynamics.
    6. Saroj Bhattarai & Konstantin Kucheryavyy, 2018. "A Unified Model of International Business Cycles and Trade," 2018 Meeting Papers 1259, Society for Economic Dynamics.
    7. Varela, Liliana & Saffie, Felipe & Yi, Kei-Mu, 2020. "The Micro and Macro Dynamics of Capital Flows," CEPR Discussion Papers 14893, C.E.P.R. Discussion Papers.
    8. Millard, Stephen & Nicolae, Anamaria & Nower, Michael, 2019. "International trade, non-trading firms and their impact on labour productivity," Bank of England working papers 787, Bank of England.
    9. Gutiérrez, Germán & Jones, Callum & Philippon, Thomas, 2021. "Entry costs and aggregate dynamics," Journal of Monetary Economics, Elsevier, vol. 124(S), pages 77-91.
    10. Saroj Bhattarai & Konstantin Kucheryavyy, 2022. "Aggregate Properties of Open Economy Models with Expanding Varieties," CESifo Working Paper Series 9870, CESifo.
    11. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2017. "Financial Frictions, Trade, and Misallocation," Research Department working papers 1106, CAF Development Bank Of Latinamerica.
    12. Jiang, Zhe (Jasmine), 2023. "‘Multinational Firms’ Sourcing Decisions and Wage Inequality: A Dynamic Analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    13. Michael Funke & Adrian Wende, 2023. "The US–China Phase One trade deal: An economic analysis of the managed trade agreement," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 758-786, May.
    14. Zlate, Andrei, 2016. "Offshore production and business cycle dynamics with heterogeneous firms," Journal of International Economics, Elsevier, vol. 100(C), pages 34-49.
    15. Germán Gutiérrez & Callum Jones & Thomas Philippon, 2019. "Entry Costs and the Macroeconomy," NBER Working Papers 25609, National Bureau of Economic Research, Inc.
    16. Kim, Daisoon, 2021. "Economies of scale and international business cycles," Journal of International Economics, Elsevier, vol. 131(C).
    17. Sauré, Philip, 2017. "Time-intensive R&D and unbalanced trade," European Economic Review, Elsevier, vol. 91(C), pages 229-244.
    18. Dudley Cooke, 2019. "Technology Choice and the Long- and Short-Run Armington Elasticity," Globalization Institute Working Papers 373, Federal Reserve Bank of Dallas.
    19. Mine Senses & Andrei Zlate & Christopher Kurz, 2017. "All Shook Up: International Trade and Firm-level Volatility," 2017 Meeting Papers 851, Society for Economic Dynamics.
    20. Cheng-wei Chang & Ching-chong Lai & Ting-wei Lai, 2020. "Fiscal stimulus in a simple macroeconomic model of monopolistic competition with firm heterogeneity," The Japanese Economic Review, Springer, vol. 71(3), pages 447-477, July.
    21. Masashige Hamano & Francesco Zanetti, 2018. "On Quality and Variety Bias in Aggregate Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), pages 1343-1363, September.
    22. Colciago, Andrea & Silvestrini, Riccardo, 2022. "Monetary policy, productivity, and market concentration," European Economic Review, Elsevier, vol. 142(C).
    23. Felipe Benguria & Felipe Saffie & Sergio Urzúa, 2018. "The Transmission of Commodity Price Super-Cycles," NBER Working Papers 24560, National Bureau of Economic Research, Inc.
    24. Francois de Soyres & Alexandre Gaillard, 2019. "Value Added and Productivity Linkages Across Countries," International Finance Discussion Papers 1266, Board of Governors of the Federal Reserve System (U.S.).

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