{
  "title": "Trade Costs, Market Integration, and Macroeconomic Volatility",
  "publication": "IMF Working Papers, March 1, 2003",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/trade-costs-market-integration-and-macroeconomic-volatility-16307",
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  "summary": "This paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, etc.).",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Paper examines the effects of trade costs on macroeconomic volatility.\n- Constructs a dynamic, two-country general equilibrium model where market integration depends directly on trade costs (transport costs, tariffs, etc.).\n- Model is an extension of Obstfeld and Rogoff (1995).\n- Reduction in trade costs - more market integration as the relative price of foreign goods falls and households increase consumption of imported goods.\n- Empirical findings provide mixed support for the model's predictions."
    },
    {
      "heading": "Model and Mechanisms",
      "content": "- Framework: dynamic, two-country general equilibrium model (extension of Obstfeld and Rogoff (1995)).\n- Market integration channel: degree of market integration depends directly on trade costs (transport costs, tariffs, etc.).\n- Behavioral response: lower trade costs reduce the relative price of foreign goods and raise household consumption of imported goods."
    },
    {
      "heading": "Key Predictions and Theoretical Findings",
      "content": "- With more market integration:\n  - Variability of the real exchange rate should fall.\n  - Variability of the trade balance should increase.\n- Trade costs have ambiguous effects on the volatility of other macro variables, such as income and consumption."
    },
    {
      "heading": "Empirical Findings",
      "content": "- The paper presents empirical findings that provide mixed support for the model's predictions."
    },
    {
      "heading": "Subject Areas and Keywords",
      "content": "- Subject: Consumption, Foreign exchange, International trade, National accounts, Real exchange rates, Tariffs, Taxes, Trade balance, Transportation\n- Keywords: aggregate demand, changes steady-state, Consumption, effective tariff rate, exchange rate, Global, globalization, iceberg-cost setup, market integration, Real exchange rates, relative prices, tariffs, Trade balance, trade cost, transport cost, transport costs, Transportation, WP\n\n---\n\n Content in this bundle\n\n- Trade Costs, Market Integration, and Macroeconomic Volatility - WP/03/54\n  - Trade Costs, Market Integration, and Macroeconomic Volatility - WP/03/54 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Trade Costs, Market Integration, and Macroeconomic Volatility - WP/03/54 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/trade-costs-market-integration-and-macroeconomic-volatility-16307"
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    "Authors: Kanda Naknoi, Allan D. Brunner",
    "Published: March 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451847536.001",
    "Paper examines the effects of trade costs on macroeconomic volatility.",
    "Constructs a dynamic, two-country general equilibrium model where market integration depends directly on trade costs (transport costs, tariffs, etc.).",
    "Model is an extension of Obstfeld and Rogoff (1995).",
    "Reduction in trade costs -> more market integration as the relative price of foreign goods falls and households increase consumption of imported goods.",
    "Empirical findings provide mixed support for the model's predictions.",
    "Framework: dynamic, two-country general equilibrium model (extension of Obstfeld and Rogoff (1995)).",
    "Market integration channel: degree of market integration depends directly on trade costs (transport costs, tariffs, etc.).",
    "Behavioral response: lower trade costs reduce the relative price of foreign goods and raise household consumption of imported goods.",
    "With more market integration:",
    "Trade costs have ambiguous effects on the volatility of other macro variables, such as income and consumption.",
    "The paper presents empirical findings that provide mixed support for the model's predictions.",
    "Subject: Consumption, Foreign exchange, International trade, National accounts, Real exchange rates, Tariffs, Taxes, Trade balance, Transportation",
    "Keywords: aggregate demand, changes steady-state, Consumption, effective tariff rate, exchange rate, Global, globalization, iceberg-cost setup, market integration, Real exchange rates, relative prices, tariffs, Trade balance, trade cost, transport cost, transport costs, Transportation, WP",
    "**Trade Costs, Market Integration, and Macroeconomic Volatility - WP/03/54**"
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