NBER Working Papers by Ina Simonovska

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Working Papers

August 2011Asset Liquidity and International Portfolio Choice
with Athanasios Geromichalos: w17331
We study optimal portfolio choice in a two-country model where assets represent claims on future consumption and facilitate trade in markets with imperfect credit. Assuming that foreign assets trade at a cost, agents hold relatively more domestic assets. Consequently, agents have larger claims to domestic over foreign consumption. Moreover, foreign assets turn over faster than domestic assets because the former have desirable liquidity properties, but represent inferior saving tools. Our mechanism offers an answer to a long-standing puzzle in international finance: a positive relationship between consumption and asset home bias coupled with higher turnover rates of foreign over domestic assets.
February 2011The Elasticity of Trade: Estimates and Evidence
with Michael E. Waugh: w16796
Quantitative results from a large class of structural gravity models of international trade depend critically on the elasticity of trade with respect to trade frictions. We develop a new simulated method of moments estimator to estimate this elasticity from disaggregate price and trade-flow data and we use it within Eaton and Kortum's (2002) Ricardian model. We apply our estimator to disaggregate price and trade-flow data for 123 countries in the year 2004. Our method yields a trade elasticity of roughly four, nearly fifty percent lower than Eaton and Kortum's (2002) approach. This difference doubles the welfare gains from international trade.
July 2010Income Differences and Prices of Tradables
I study the positive relationship between prices of tradable goods and per-capita income. I develop a highly tractable general equilibrium model of international trade with heterogeneous firms and non-homothetic consumer preferences that accounts for the observed cross-country variation in prices along two key dimensions. The model yields a new testable prediction that relates prices to measurable variables. I use the prediction to estimate the elasticity of price with respect to per-capita income from unique data featuring prices of 245 identical goods sold exclusively via the Internet in twenty-nine European, Asian, and North American markets. The empirical findings suggest that variable mark-ups account for a third of the observed cross-country differences in prices of tradables.

Contact and additional information for this authorAll publicationsWorking Papers only


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