Anderson and van Wincoop (2003) showed the importance of multilateral resistance general equilibrium effects in estimating the response of trade flows to trade costs. We integrate this into Helpman, Melitz, and Rubinstein's (2008) extension of Anderson and van Wincoop's framework, which allows for firm heterogeneity, in order to quantify the different margins of adjustment. For bilateral trade cost changes, the general equilibrium effects are small. Surprisingly, most country pairs reduce their trade after a multilateral fall in trade costs. The global trade response to lower costs is positive, amplified by firm entry, but significantly dampened by multilateral resistance.

This paper examines the role of macroprudential capital requirements in preventing inefficient credit booms in a model with reputational externalities. In our model, unprofitable banks have strong incentives to invest in risky assets when macroeconomic fundamentals are good in order to avoid the stigma of being assessed as low ability by the market. We show that across-the-system countercyclical capital requirements that deter such gambling are constrained optimal when fundamentals are neither extremely weak nor extremely strong.