We develop an approach to measuring the cost of living for CES preferences that treats demand shocks as taste shocks that are equivalent to price shocks. In the presence of relative taste shocks, the Sato-Vartia price index is upward biased because an increase in the relative consumer taste for a variety lowers its taste-adjusted price and raises its expenditure share. By failing to allow for this association, the Sato-Vartia index underweights drops in taste-adjusted prices and overweights increases in taste-adjusted prices, leading to what we call a “taste-shock bias.” We show that this bias generalizes to other invertible demand systems.

We provide new theory and evidence on the role of external and internal integration in structural transformation and economic development, using Argentina’s integration into the world economy in the late nineteenth century. Our theoretical model provides microfoundations for a spatial Balassa-Samuelson effect, in which locations closer to world markets have higher population densities, urban population shares, relative prices of nontraded goods, and land prices relative to wages, as well as specializing in traded goods that are transport-cost sensitive. We estimate the model’s parameters, provide evidence in support of this spatial Balassa-Samuelson mechanism, and find substantial effects of both external and internal integration on economic development.

We develop a tractable quantitative framework for modeling the rich patterns of spatial mobility observed in smartphone data. We show that travel is frequently undertaken as part of a travel itinerary, defined as a journey starting and ending at home that can include more than one intermediate stop on a given day. We show that these travel itineraries provide microfoundations for consumption externalities and generate both complementarity and substitutability between locations. We show that the consumption externalities implied by travel itineraries are central to matching quasi-experimental evidence from the shift to working from home. We find that these consumption externalities are key drivers of the agglomeration of economic activity in central cities and shape the relative welfare gains from alternative transport improvements in favor of investments in central cities.

We incorporate forward‐looking capital accumulation into a dynamic discrete choice model of migration. We characterize the steady‐state equilibrium; generalize existing dynamic exact‐hat algebra techniques to incorporate investment; and linearize the model to provide an analytical characterization of the economy's transition path using spectral analysis. We show that capital and labor dynamics interact to shape the economy's speed of adjustment toward steady state. We implement our quantitative analysis using data on capital stocks, populations, and bilateral trade and migration flows for U.S. states from 1965–2015. We show that this interaction between capital and labor dynamics plays a central role in explaining the observed decline in the rate of income convergence across U.S. states and the persistent and heterogeneous impact of local shocks.

We show that endogenous firm selection provides a new welfare margin for heterogeneous firm models of trade (relative to homo geneous firm models). Under some parameter restrictions, the trade elasticity is constant and is a sufficient statistic for welfare, along with the domestic trade share. However, even small deviations from these restrictions imply that trade elasticities are variable and differ across markets and levels of trade costs. In this more general setting, the domestic trade share and endogenous trade elasticity are no longer sufficient statistics for welfare. Additional empirically observable moments of the micro structure also matter for welfare.

In a class of trade models which satisfy a constant elasticity gravity equation, the welfare gains from trade can be computed using the open economy domestic trade share and a constant trade elasticity. The measured welfare gains from trade from this quantitative approach are typically relatively modest. In this paper, we suggest a channel for welfare gains that this quantitative approach typically abstracts from: trade-induced changes in domestic productivity. Using a model of sequential production, in which trade induces a reorganization of production that raises domestic productivity, we show that the welfare gains from trade can become arbitrarily large.

We study unanticipated tariffs in a setting with firm-to-firm supply relationships. Firms conduct costly searches and negotiate with potential suppliers that pass a reservation level of match productivity. Global supply chains form in anticipation of free trade. Then, the home government surprises with an input tariff. This can lead to renegotiation with initial suppliers or search for replacements. Calibrating the model’s parameters to match initial import shares and the estimated responses to the US tariffs imposed on China, we find an overall welfare loss of 0.12 percent of GDP, with substantial contributions from changes in input sourcing and search costs.

We provide theory and evidence on the relationship between globalization and pandemics. Business travel facilitates trade and travel leads to human interactions that transmit disease. Trade-motivated travel generates an epidemiological externality across countries. If infections lead to deaths, or reduce individual labor supply, we establish a general equilibrium social distancing effect, whereby increases in relative prices in unhealthy countries reduce travel to those countries. If agents internalize the threat of infection, we show that their behavioral responses lead to a reduction in travel that is larger for higher-trade-cost locations, which initially reduces the ratio of trade to output.

To understand the elasticity of employment to local labor demand shocks, we develop a quantitative general equilibrium model that incorporates spatial linkages in goods markets (trade) and factor markets (commuting and migration). We show that local employment elasticities differ substantially across U.S. counties and commuting zones in ways that are not well explained by standard empirical controls but are captured by commuting measures. We provide independent evidence for these predictions from million dollar plants and find that empirically-observed reductions in commuting costs generate welfare gains of around 3.3 percent and employment reallocations from -20 to 30 percent.

This paper develops a new framework for examining the determinants of wage distributions that emphasizes within-industry reallocation, labor market frictions, and differences in workforce composition across firms. More productive firms pay higher wages and exporting increases the wage paid by a firm with a given productivity. The opening of trade enhances wage inequality and can either raise or reduce unemployment. While wage inequality is higher in a trade equilibrium than in autarky, gradual trade liberalization first increases and later decreases inequality.