English, Article, Journal or magazine article edition: Relative Price Riddles in International Business Cycle Theory: Are Transport Costs the Explanation? Elisabetta Mazzenga; Morten O. Ravn

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Bookmark: http://trove.nla.gov.au/version/152837
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Relative Price Riddles in International Business Cycle Theory: Are Transport Costs the Explanation?
Author
  • Elisabetta Mazzenga
  • Morten O. Ravn
Physical Description
  • preprint
Notes
  • We study relative price behavior in an international business cycle model with specialization in production, in which a goods market friction is introduced through transport costs. The transport technology allows for flexible transport costs. We analyze whether this extension can account for the striking differences between theory and data as far as the moments of terms of trade and real exchange rates are concerned. We find that transport costs increase both the volatility of the terms of trade and the volatility of the real exchange rate. However, unless the transport technology is specified by a Leontief technology, transport costs do not resolve the quantitative discrepancies between theory and data. A surprising result is that transport costs may actually lower the persistence of the real exchange rate, a finding that is in contrast to much of the emphasis of the empirical literature.
  • International business cycles, terms of trade, real exchange rates, transport costs
  • RePEc:upf:upfgen:312
Language
  • English
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