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A comment on "The effect of a common currency on the volatility of the extensive margin of trade"

Author

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  • Luís Alexandre Barbosa Guimarães

    (Faculdade de Economia, Universidade do Porto)

Abstract

In this paper I comment on Auray, Eyquem, and Pontineau (2012). I show that their introduction of sticky-prices into Ghironi \& Melitz (2005) framework is incorrect and generates a bias in simulation results. Additionally, I find that, by introducing sticky-prices into Ghironi \& Melitz (2005) framework in a correct way, the model is able to account for the empirical findings of Auray, Eyquem, and Pontineau (2012). Finally, I also find that if central banks target a data-consistent CPI inflation, results improve quantitatively.

Suggested Citation

  • Luís Alexandre Barbosa Guimarães, 2012. "A comment on "The effect of a common currency on the volatility of the extensive margin of trade"," FEP Working Papers 449, Universidade do Porto, Faculdade de Economia do Porto.
    • Handle: RePEc:por:fepwps:449
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    References listed on IDEAS

    as
    1. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 865-915.
    2. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February.
    3. Auray, Stéphane & Eyquem, Aurélien & Poutineau, Jean-Christophe, 2012. "The effect of a common currency on the volatility of the extensive margin of trade," Journal of International Money and Finance, Elsevier, vol. 31(5), pages 1156-1179.
    4. John B. Taylor, 1995. "The Monetary Transmission Mechanism: An Empirical Framework," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 11-26, Fall.
    5. Julio J. Rotemberg, 1982. "Monopolistic Price Adjustment and Aggregate Output," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 517-531.
    6. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    More about this item

    Keywords

    Pricing-to-market; Local currency pricing; Extensive Margin; Monetary Union; Monetary Policy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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