TY  - JOUR
AU  - Bergin,Paul R.
AU  - Glick,Reuven
TI  - Endogenous Tradability and Macroeconomic Implications
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9739
PY  - 2003
Y2  - June 2003
UR  - http://www.nber.org/papers/w9739
L1  - http://www.nber.org/papers/w9739.pdf
N1  - Author contact info:
Paul Bergin
Department of Economics
University of California, Davis
One Shields Ave.
Davis, CA 95616
Tel: 530/752-8398
Fax: 530/752-9382
E-Mail: prbergin@ucdavis.edu

Reuven Glick
Economic Research Department
Federal Reserve Bank of San Francisco
101 Market Street
San Francisco, CA  94105
Tel: 415/974-3184
Fax: 415/974-2168
E-Mail: reuven.Glick@sf.frb.org
AB  - International macroeconomic models long have had difficulty explaining the surprisingly low volatility of the relative price between traded and nontraded goods compared to real exchange rates. This apparent puzzle may reflect a restrictive way of thinking about the nature of nontraded goods. Rather than imposing an artificial dichotomy between traded and nontraded, we regard all goods as parts of a single continuum, where the margin between traded and nontraded is endogenous. This implies that their prices are linked together via a marginal good and a new equilibrium condition. A simple and transparent model is used to demonstrate this approach, featuring a small open economy where differentiated goods are heterogeneous in terms of their iceberg trade costs. The paper goes on to find implications for other basic macroeconomic issues, such as limiting the potency of real exchange rate movements to correct large current account imbalances.
ER  -