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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/18993
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| Title: | | Trade costs, trade balances and current accounts : an application of gravity to multilateral trade  |
| Authors: | | Fazio, Giorgio MacDonald, Ronald Melitz, Jacques |
| Issue Date: | | 2005 |
| Series/Report no.: | | CESifo working papers 1529 |
| Abstract: | | In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires a fundamental revision of Obstfeld and Rogoff?s argument. A further novelty of our work is in tying bilateral trade behavior to desired aggregate trade balances and desired intertemporal trade. |
| Subjects: | | Feldstein-Horioka puzzle trade costs gravity model home bias puzzle current account trade balance |
| JEL: | | F32 F10 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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