I study the aggregate effects of labour market frictions in a small open economy where firms grow slowly and make fixed export investments. The model features interactions between dynamic investments in exporting and search frictions with job-to-job mobility. A calibration to Argentina’s economy matching data on firm growth, worker transitions between firms, and export dynamics suggests that the real income gains from lowering frictions in job-to-job transitions are about seven times larger than comparable reductions in frictions from unemployment. Barriers to worker mobility across firms matter for the real income gains of trade-cost reductions.

In order to describe an inflationary process it is necessary to have some knowledge of how prices and wages are determined. Conventional economic theory has regarded prices (and wages) as reacting to the level of excess demand or supply in the commodity (labour) market. Investigations have shown, however, that especially in manufacturing industries prices are often determined by applying a profit margin to variable costs., Some wages are also "cost determined", as for instance, in Australia where until recently the Commonwealth basic wage was adjusted quarterly to changes in the C. Series price index. A realistic analysis of inflation processes should allow for both cost and demand influences in price and wage determination. (First paragraph of Precis.)

We estimate the elasticity of exports to credit using matched customs and firm-level bank credit data from Peru. To account for non-credit determinants of exports, we compare changes in exports of the same product and to the same destination by firms borrowing from banks differentially affected by capital-flow reversals during the 2008 financial crisis. We find that credit shocks affect the intensive margin of exports, but have no significant impact on entry or exit of firms to new product and destination markets. Our results suggest that credit shortages reduce exports through raising the variable cost of production, rather than the cost of financing sunk entry investments.

In this paper a theorem is developed giving necessary and sufficient conditions for the uniqueness of homogeneous product Cournot equilibria. The result appears to be the strongest to date and the first to involve both necessity and sufficiency. The theorem states than an equilibrium is unique if and only if the determinant of the Jacobian of marginal profits for firms producing positive output is positive at all equilibria. The result applies to the case where profit functions are twice differentiable and pseudoconcave, industry output can be bounded, the above Jacobian is non-singular at equilibria, and marginal profits are strictly negative for non-producing firms. The proof uses fixed point index theory from differential topology.

Calibration, the practice of choosing the parameters of a structural model to match certain empirical moments, can be viewed as minimum distance estimation. Existing standard error formulas for such estimators require a consistent estimate of the correlation structure of the empirical moments, which is often unavailable in practice. Instead, the variances of the individual empirical moments are usually readily estimable. Using only these variances, we derive conservative standard errors and confidence intervals for the structural parameters that are valid even under the worst-case correlation structure. In the over-identified case, we show that the moment weighting scheme that minimizes the worst-case estimator variance amounts to a moment selection problem with a simple solution. Finally, we develop tests of over-identifying or parameter restrictions. We apply our methods empirically to a model of menu cost pricing for multi-product firms and to a heterogeneous agent New Keynesian model.

Difference-in-differences (DID) is a method to evaluate the effect of a treatment. In its basic version, a “control group” is untreated at two dates, whereas a “treatment group” becomes fully treated at the second date. However, in many applications of the DID method, the treatment rate only increases more in the treatment group. In such fuzzy designs, a popular estimator of the treatment effect is the DID of the outcome divided by the DID of the treatment. We show that this ratio identifies a local average treatment effect only if the effect of the treatment is stable over time, and if the effect of the treatment is the same in the treatment and in the control group. We then propose two alternative estimands that do not rely on any assumption on treatment effects, and that can be used when the treatment rate does not change over time in the control group. We prove that the corresponding estimators are asymptotically normal. Finally, we use our results to reassess the returns to schooling in Indonesia.

The Ricardian model predicts that countries should produce and export relatively more in industries in which they are relatively more productive. Though one of the most celebrated insights in the theory of international trade, this prediction has received little attention in the empirical literature since the mid-1960s. The main reason behind this lack of popularity is the absence of clear theoretical foundations to guide the empirical analysis. Building on the seminal work of Eaton and Kortum (2002), we offer such foundations and use them to quantify the importance of Ricardian comparative advantage. In the process, we also provide a theoretically-consistent alternative to Balassa’s (1965) well-known index of ‘revealed comparative advantage.’

In markets where sellers are able to price discriminate, individuals pay different prices that may be unobserved by the econometrician. This article considers the structural estimation of a demand and supply model of differentiated products with such price discrimination and limited information on prices taking the form of, e.g., observing list prices from catalogues or average prices. Within this framework, identification is achieved not only with usual moment conditions on the demand side, but also through supply-side restrictions. The model can be estimated by GMM using a nested fixed point algorithm that extends the usual contraction mapping algorithm to our setting. We apply our methodology to estimate the demand and supply in the French new automobile market. Our results suggest that discounting arising from price discrimination is important. The average discount is estimated to be 9.6%, with large variation depending on buyers’ characteristics and cars’ specifications. Our results are consistent with other evidence on transaction prices in France.

In a monetary model, it is shown that if there is a unique Pareto inefficient barter equilibrium, then a monetary equilibrium exists when traders are sufficiently patient. 1.

In Hart (1979), a model of monopolistic competition in a large economy with differentiated commodities was developed. In this model, firms had a choice whether to set up or not. One feature of the model was that free entry of firms was not assumed. Barriers to entry were captured by assuming that there was a large (generally, infinite) set of potential firms F. Corresponding to each f ∊ F, there was a firm (called “firm f”) with a production set Y(f). Each firm had a set-up cost associated with it. Only very weak conditions were placed on the set F and the production set mapping Y(·), so that in particular the case where different firms could produce a commodity on different terms was allowed for. The economy was made large by replicating the consumer sector, keeping the production sector, i.e. the set of potential firms F, fixed. The number of operating firms in equilibrium generally increased, however, since in view of the set-up costs there was “room” for more firms in a large economy. Unfortunately, it turns out that this procedure, while correct, does not capture quite what was intended. In particular, while in the resulting monopolistically competitive equlibrium, some firms will earn supernormal profits, it can be shown that, for any η > 0, the per capita number of firms earning profits in excess of η tends to zero as the size of the consumer sector tends to infinity (see Corollary 6 in the Appendix to Hart (1979)). In other words, in per capita terms, almost all firms earn approximately zero profits in a large economy. Thus while barriers to entry may be significant in absolute terms, in per capita terms they are negligible. The way round this difficulty is to drop the assumption that the set of potential firms is fixed. Instead substitute the assumption that the set of potential firms in the economy rE, where the consumer sector is replicated r times, is given by where F is as before. That is, one replicates the set of potential firms at the same time as the consumer sector. Then the theorems of Hart (1979) continue to hold. Corollary 6 in the Appendix must be modified as follows. Corollary 6′. There exists h > 0 such thatfor all f ∊ F. Corollary 6′ is proved below. Otherwise the proofs of Theorem 1 and Proposition 2 are unchanged (one no longer sets h = 1 after Corollary 6). As an example, F might consist of one firm with an efficient technology for producing some commodity and one firm with an inefficient technology. Then in the economy rE, there will be r potential firms with the efficient technology and r potential firms with the inefficient technology. It is easy to construct cases where both types of firms operate in the monopolistically competitive equilibrium in rE and the efficient firms earn supernormal profits which are bounded away from zero as r → ∞. Thus barriers to entry which are significant in per capita terms are now allowed for. A justification for replicating F along with the consumer sector can be given. In the above example, the efficient firms may owe their superior technology to the fact that they are situated on good land, say, of which there is a scarcity (thus the supernormal profits are just rents on the land). When one replicates the economy, it is natural to replicate the scarce land and hence the number of firms which are situated on it, so as to keep everything constant except for scale. Note finally that it may be possible to generalize the analysis to the case where the set of potential firms in the economy rE is given by rF, where 1F, 2F are exogenously specified sets and rF is not necessarily the r-fold union of some set F. We have not investigated this, however. Proof of Corollary 6′. Suppose not. Then for each h > 0, we can find f ∊ F with . By Lemma 5 (2), rπf > h for all r ≧ some r*. But in rE there are r firms identical to firm f and so each of these firms makes profit in excess of h in the monopolistically competitive equilibrium when r ≧ r*. Hence total per capita profits of all firms exceed h in equilibrium when r ≧ r*. It follows that, letting h → ∞, we can find a subsequence of the economies rE such that total per capita profits tend to infinity along the subsequence. However, applying Corollary 4 and an argument similar to that in (A.30)–(A.32), we see that ʃArp(a)drY1(a) is bounded. Hence so are per capita profits, ʃArp(a)drY1(a) + rY0. Contradiction. ||