Resource title

Trade costs, trade balances and current accounts : an application of gravity to multilateral trade

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image for OpenScout resource :: Trade costs, trade balances and current accounts : an application of gravity to multilateral trade

Resource description

In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires a fundamental revision of Obstfeld and Rogoff?s argument. A further novelty of our work is in tying bilateral trade behavior to desired aggregate trade balances and desired intertemporal trade.

Resource author

Giorgio Fazio, Ronald MacDonald, Jacques Melitz

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/18993

Resource license

Adapt according to the presented license agreement and reference the original author.