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We develop a stochastic, general equilibrium, two-country model of trade and macroeconomic dynamics. Productivity differs across individual, monopolistically competitive firms in each country. Firms face a sunk entry cost in the domestic market and both fixed and per-unit export costs. Only relatively more productive firms export. Exogenous shocks to(More)
We develop a baseline model of monetary and fiscal transmission in interdependent economies. The welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade. An unanticipated exchange rate depreciation can be beggar-thyself rather than beggar-thy-neighbor, as gains in domestic output are(More)
This paper addresses the consumption-real exchange rate anomaly. International real business cycle models based on complete financial markets predict a unitary correlation between the real exchange rate and the ratio of home to foreign consumption when subjected to supply side shocks. In the data, this correlation is usually small and often negative. This(More)
This paper studies the role of endogenous producer entry and product creation for monetary policy analysis and business cycle dynamics in a general equilibrium model with imperfect price adjustment. Optimal monetary policy stabilizes producer prices, but lets the consumer price index vary to accommodate changes in the number of available products. The free(More)
Previously circulated under the title " Business Cycles and Firm Dynamics " and …rst presented in the summer of 2004. For helpful comments, we thank Robert Shimer, two anonymous referees, and participants in many conferences and seminars. We are grateful to and Banque de France for …nancial support through the Chaire Banque de France at the Paris School of(More)
External Members of the Monetary Policy Committee and their dedicated economic staff. Papers are made available as soon as practicable in order to share research results and stimulate further discussion of key policy issues. However, the views expressed are those of the authors and do not represent the views of the Bank of England or necessarily the views(More)
International financial integration has greatly increased the scope for changes in a country's net foreign asset position through the " valuation channel " of external adjustment, namely, capital gains and losses on the country's external assets and liabilities. We examine this valuation channel theoretically in a dynamic equilibrium portfolio model with(More)
While outsourcing of production from the U.S. to Mexico has been hailed in Mexico as a valuable engine of growth, recently there have been misgivings regarding the fickleness and volatility of this engine. This paper is among the first in the trade literature to focus on the second moment properties of outsourcing. We begin by documenting a new stylized(More)