Articles

Entry, trade costs, and international business cycles

R. N. FATTAL JAEF, J. I. LOPEZ

Journal of International Economics

November 2014, vol. 94, n°2, pp.224-238

Departments: Economics & Decision Sciences

Keywords: International business cycle, Extensive margin, Entry, Fixed export costs


Are firm entry and fixed exporting costs relevant for understanding the international transmission of business cycles? We revisit this question using a model that includes entry, selection to exporting activity, physical capital accumulation and endogenous labor supply. We determine that once the stochastic process for exogenous productivity is calibrated to consider the endogenous dynamics in TFP created by the number of firms and the time series volatility of entry is calibrated to the data, our model yields minimal departures from the Backus et al. (1992) benchmark. The richer model shares all of the successes of the previous model in terms of the volatilities of aggregate quantities, as well as its failures, in terms of replicating patterns of international co-movement and the volatility of international relative prices


JavaScriptSettings