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Trade Costs and Some Puzzles in International Macroeconomics

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  • Luke Willard

    (Reserve Bank of Australia)

Abstract

Obstfeld and Rogoff (2001) argue that trade costs provide at least part of the explanation for a number of puzzles in international macroeconomics. Using data on imports to the United States from developed economies, this paper investigates whether trade costs are associated with correlations associated with three of these puzzles: the Feldstein-Horioka saving-investment puzzle; the purchasing power parity real exchange rate persistence puzzle; and the international consumption correlation puzzle. In general there is some evidence in support of Obstfeld and Rogoff’s argument, though the parameters are often imprecisely estimated.

Suggested Citation

  • Luke Willard, 2007. "Trade Costs and Some Puzzles in International Macroeconomics," RBA Research Discussion Papers rdp2007-10, Reserve Bank of Australia.
    • Handle: RePEc:rba:rbardp:rdp2007-10
    as

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    File URL: https://www.rba.gov.au/publications/rdp/2007/pdf/rdp2007-10.pdf
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    References listed on IDEAS

    as
    1. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412, National Bureau of Economic Research, Inc.
    2. Coeurdacier, Nicolas, 2009. "Do trade costs in goods market lead to home bias in equities?," Journal of International Economics, Elsevier, vol. 77(1), pages 86-100, February.
    3. Giorgio Fazio & Ronald MacDonald & Jacques Melitz, 2008. "Trade Costs, Trade Balances and Current Accounts: An Application of Gravity to Multilateral Trade," Open Economies Review, Springer, vol. 19(5), pages 557-578, November.
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    7. Kenneth Rogoff, 1996. "The Purchasing Power Parity Puzzle," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 647-668, June.
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    More about this item

    Keywords

    consumption smoothing; Feldstein-Horioka puzzle; purchasing power puzzle; trade;
    All these keywords.

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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