TY  - JOUR
AU  - Beaudry,Paul
AU  - Portier,Franck
TI  - A Gains from Trade Perspective on Macroeconomic Fluctuations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 17291
PY  - 2011
Y2  - August 2011
UR  - http://www.nber.org/papers/w17291
L1  - http://www.nber.org/papers/w17291.pdf
N1  - Author contact info:
Paul Beaudry
Department of Economics
University of British Columbia
997-1873 East Mall
Vancouver, B.C.
Canada,  V6T 1Z1
Tel: 604/822-8624
Fax: 604/822-5915
E-Mail: paulbe@interchange.ubc.ca

Franck Portier
Toulouse School of Economics
University of Toulouse
Manufacture des Tabacs
21 Allee de Brienne
31000 Toulouse, FRANCE
Tel: +33 561128840
E-Mail: franck.portier@tse-fr.eu
AB  - Business cycles reflect changes over time in the amount of trade between individuals.  In this paper we show that  incorporating explicitly intra-temporal gains from trade between individuals into a macroeconomic model can provide new insight into the potential mechanisms driving economic fluctuations as well as modify key policy implications.  We first show how a "gains from trade" approach can easily explain why changes in perceptions about the future (including "news" about the future) can cause booms and bust. We then turn to fiscal policy, and discuss under what conditions fiscal multipliers can be observed. While much of our analysis is conducted in a flexible price environment, we also present implications of our model for a sticky price environments, as it allows to understand stable-inflation boom-bust cycles. The source of the explicit gains from trade in our setup derives from simply assuming that in the short run workers are not perfect mobile across all sectors of the economy.  We provide evidence from the PSID in support of this modeling assumption.
ER  -