Goods-Market Frictions and International Trade

113 Pages Posted: 27 Dec 2016 Last revised: 10 Oct 2019

See all articles by Pawel Michal Krolikowski

Pawel Michal Krolikowski

Federal Reserve Banks - Federal Reserve Bank of Cleveland

Andrew H. McCallum

Board of Governors of the Federal Reserve System

Multiple version iconThere are 3 versions of this paper

Date Written: September 11, 2018

Abstract

We add goods-market frictions to a general equilibrium dynamic model with heterogeneous exporting producers and identical importing retailers. Our tractable framework leads to endogenously unmatched producers, which attenuate welfare responses to foreign shocks but increase the trade elasticity relative to a model without search costs. Search frictions are quantitatively important in our calibration, attenuating welfare responses to tariffs by 40 percent and increasing the trade elasticity by 50 percent. Eliminating search costs raises welfare by 1 percent and increasing them by only a few dollars has the same effects on welfare and trade flows as a 10 percent tariff.

Keywords: Search, Trade, Goods, Frictions, Information

JEL Classification: D83, F12

Suggested Citation

Krolikowski, Pawel Michal and McCallum, Andrew H., Goods-Market Frictions and International Trade (September 11, 2018). FRB of Cleveland Working Paper No. 16-35R, Available at SSRN: https://ssrn.com/abstract=2889761

Pawel Michal Krolikowski (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Cleveland ( email )

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United States

Andrew H. McCallum

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

HOME PAGE: http://www.andrewhmccallum.com

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