A Model of Endogenous Nontradability and its Implications for the Current Account

FRB of San Francisco Working Paper No. 2002-11

39 Pages Posted: 12 Jul 2004

See all articles by Paul R. Bergin

Paul R. Bergin

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Reuven Glick

Federal Reserve Bank of San Francisco - Center for Pacific Basin Monetary & Economic Studies

Multiple version iconThere are 2 versions of this paper

Date Written: June 2003

Abstract

This paper analyzes how a model where goods are endogenously nontraded can help explain the relationship between the current account and real exchange rate fluctuations. We formulate a small open economy two-period model in which goods switch endogenously between being traded or nontraded. The model demonstrates how movements in the real exchange rate and real interest rate can impose significant costs on intertemporal trade. The model also shows that a variety of nonlinear relationships is possible between the current account and real exchange rate, depending on the relative transport costs and substitutability in preferences between goods. In contrast to recent work, our analysis implies that such costs of intertemporal trade may be a concern for many countries, not just those with large current account imbalances.

Keywords: Trade, prices, econometric models

JEL Classification: F4

Suggested Citation

Bergin, Paul R. and Glick, Reuven, A Model of Endogenous Nontradability and its Implications for the Current Account (June 2003). FRB of San Francisco Working Paper No. 2002-11. Available at SSRN: https://ssrn.com/abstract=563367 or http://dx.doi.org/10.2139/ssrn.563367

Paul R. Bergin

University of California, Davis - Department of Economics ( email )

One Shields Drive
1141 Social Sciences & Humanities Bldg.
Davis, CA 95616-8578
United States
530-752-8398 (Phone)
530-752-9382 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Reuven Glick (Contact Author)

Federal Reserve Bank of San Francisco - Center for Pacific Basin Monetary & Economic Studies ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
26
Abstract Views
604
PlumX Metrics