TY  - JOUR
AU  - Ghironi,Fabio
AU  - Melitz,Marc J.
TI  - International Trade and Macroeconomic Dynamics with Heterogeneous Firms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10540
PY  - 2004
Y2  - June 2004
UR  - http://www.nber.org/papers/w10540
L1  - http://www.nber.org/papers/w10540.pdf
N1  - Author contact info:
Fabio Ghironi
Boston College
Department of Economics
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3859
Tel: 617/552-3686
Fax: 617/552-2308
E-Mail: fabio.ghironi@bc.edu

Marc Melitz
Department of Economics
Harvard University
215 Littauer Center
Cambridge, MA 02138
E-Mail: mmelitz@harvard.edu
AB  - 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 aggregate productivity and entry or trade costs induce firms to enter and exit both their domestic and export markets, thus altering the composition of consumption baskets across countries over time. In a world of flexible prices, our model generates endogenously persistent deviations from PPP that would not exist absent our microeconomic structure with heterogeneous firms. It provides an endogenous, microfounded explanation for a Harrod-Balassa-Samuelson effect in response to aggregate productivity differentials and deregulation. Finally, the model successfully matches several moments of U.S. and international business cycles.
ER  -