Trade and Tradability: Exports, Imports, and Factor Markets in the Salter-Swan Model

We extend the Salter-Swan model to include both factor markets and semi-traded goods. In our model, changes in relative factor prices depend on changes in world commodity prices, factor endowments, and the trade balance. In contrast, only changes in world commodity prices can affect factor prices in the neoclassical trade model. The inclusion of semi-traded goods weakens the magnification effect in both the Stolper-Samuelson and Rybczynski theorems. When imports and domestic goods are poor substitutes, a characteristic of some commodities in developing countries, the sign of the Stolper-Samuelson theorem is reversed.     

Understanding the Effect of Productivity Changes on International Relative Prices: The Role of News Shocks

The US real exchange rate and terms of trade have been found to appreciate when US labour productivity increases relative to the rest of the world. This finding is at odds with predictions from standard international macroeconomic models. In this paper, we find that incorporating news shocks to total factor productivity (TFP) in an otherwise standard open‐economy sticky‐price dynamic stochastic general equilibrium (DSGE) model with variable capital utilization can help the model replicate the above empirical finding. Labour productivity increases in our model after a positive news shock to TFP because of an increase in capital utilization. Under some plausible calibrations, the wealth effect of good news about future productivity can increase domestic demand strongly and induce an increase in home goods prices relative to foreign goods prices.     

Joint search for several goods

Joint search occurs when a buyer incurs a single cost to observe prices of several different goods. If the prices are drawn from a known joint distribution function, the optimal sequential strategy with no recall uses a reservation sum for any subset of items. When the observed prices total more than the corresponding reservation sum, not all goods will be bought and search continues for items not purchased. Thus, regions in the price space are associated with various buy-search decisions. The reservation sums, however, have properties analogous to those of the reservation price with search for one good.     

人民币升值能改善日美与中国的贸易状况吗?——基于汇率经过效应的研究

有学者提出,被低估的人民币是中国贸易盈余和全球贸易不平衡的主要因素,因此,人民币升值有助于改善中西方的贸易状况。显然,这种观点的内在逻辑是:人民币升值将提高中国出口商品的价格,同时降低外国进口商品和服务的价格,即人民币升值存在较大的汇率经过效应(pass-though effect)。通过对人民币汇率经过效应的研究,发现人民币升值不能改善美国与中国的贸易状况,但能改善日本与中国的贸易状况;其差别的原因就在于贸易定价的不同。     

Home bias, distribution services and determinants of real exchange rates

This paper examines empirically how exogenous changes in the terms of trade affect the real exchange rate through the relative price of traded goods with Canada–US data. The relative price of traded goods is constructed using prices at the dock and retail prices. The first measure emphasizes the importance of home bias in consumption of traded goods. The second measure highlights the importance of distribution services required for consumption of traded goods. It is found that terms of trade shocks affect the relative price of traded goods using both measures. A possible interpretation of empirical findings is that home bias and distribution services are important for understanding the relative price of traded goods.     

NEW INSIGHTS INTO THE STRUCTURE OF THE WORLD ECONOMY*

The United Nations' newly completed study of purchasing power parities covering 34 countries varied in region, income level, and form of economic organization shows the systematic differences between the usual view of the structure of the world economy arising out of international comparisons based upon foreign exchange rate conversions and the structure one sees when actual prices are available. The real per capita GDP of developing countries is understated relative to developed countries when exchange rates are used in converting countries' national income accounts to a common currency, with the degree of understatement for any two countries being inversely related to the per capita income difference between them. The reason for this is that relative prices in the non-traded goods sector are lower relative to traded goods prices in low income countries. The systematic pattern observed in the 1975 data of the 34 countries has been extrapolated over time and space to get estimates of GDP for other years and countries. In the absence of detailed price data, the real shares of final expenditures devoted to particular components of the total can only be estimated as the proportion of own currency total expenditure devoted to the components. The observed differences in the pattern of prices of poor countries relative to rich for different components makes this clearly wrong for international comparisons, and in systematic ways. For example, (i) the relative price of services compared with commodities in poor countries is lower than in rich; so the apparent tendency of the share of services to rise as a country's income rises disappears when real quantities are considered; similarly, (ii) the relative price of capital goods is greater in poor countries compared with rich ones, so the difference in investment ratios out of GDP between rich and poor countries is understated.     

Intersectoral Spillovers,Relative Prices and Development Traps

Why is the economic growth rate so low in poor countries? This paper offers an explanation by using a simple two‐sector AK growth model with intersectoral linkages and high relative prices of intermediate goods. Intersectoral linkages lead to two balanced growth paths (BGPs). The high‐growth BGP is a source. The low‐growth BGP is a sink because it has a small final goods sector, small intersectoral spillovers from the final goods sector to the intermediate goods sector, and small marginal products in the intermediate goods sector, yielding high relative prices of intermediate goods. The low‐growth BGP is an attractor and thus development trap. To produce a big push effect, this paper analyzes the first‐best policy and finds that a subsidy to own consumption and a provision of public goods to the final goods sector can internalize the external effect and render the low‐growth BGP infeasible. As a result, there is only the high‐growth BGP.     

Relative importance of sectoral and aggregate sources of price changes

This paper estimates a dynamic common factor model to assess relative importance of the aggregate and the sector-specific factors that determine changes in the prices of individual products. It also examines how aggregate price changes are affected by these factors. Two different specifications of the model are estimated: the baseline model with one aggregate factor, and a second specification with two aggregate factors. In the one-actor model, the aggregate factor contributes little to the movements of changes in prices, mostly of nondurable goods whereas it seems to have important contributions to the movements of changes in prices of commodity groups mainly used as intermediate or capital goods. In the specification with two aggregate factors, the additional factor has significant effects on changes in prices of ‘farm products’ and ‘processed foods and feeds’ only. Forecast-error variance decompositions of both aggregate and disaggregate price changes suggest that sectoral factors account for most of the variability at short horizons while the contributions of the aggregate factors increase as the time horizon lengthens. The results also show that sectoral factors are not only important for relative price changes but also have significant impact on aggregate inflation. The estimated common factors have statistically significant correlations with money growth and changes in the unemployment rate.     

RAMSEY TAXES MEET PRICE RIGIDITY

‘Ramsey taxes’ are commodity taxes that minimize deadweight loss. Evidence has shown dramatic differences in the extent of price rigidity across goods: while the prices of some goods change frequently, the prices of other goods seldom change. This paper examines Ramsey taxes in the presence of heterogeneous price rigidity. We find that, to minimize deadweight loss, lower (higher) tax rates should be imposed on goods with rigid prices if their relative prices are too high (low) relative to the would‐be situation of no price stickiness. Intuitively, Ramsey taxes remedy the relative price distortion caused by the price rigidity of some goods. We calibrate our model to data from Taiwan and the USA, showing a significant cut in welfare cost if Ramsey rather than uniform taxes are applied.     

中国行业垄断的收入分配效应

收入分配差距过大是中国社会发展的难点和热点问题,行业垄断已经成为加剧中国收入分配矛盾的重要原因。为此,本文构建新的垄断-竞争两部门利润分享模型,揭示行业垄断影响收入分配的内在机制,并结合中国的经验数据进行实证分析。研究表明,行业垄断在产品与要素市场中,通过最终产品消费的福利转移、要素的区别定价以及垄断利润在不同就业者之间的非均衡分享导致收入分配差距的扩大;在行业垄断力量对经济干预较多的阶段,收入差距扩大问题较为严重,并且往往表现为劳动总收入的下降。因此,持续提升劳动者收入,保持收入分配的合理化,必须配合行之有效的行政垄断部门改革,打破行业垄断所形成的二元经济结构,降低行业垄断在生产和分配领域中的影响。     

Mixed linear-nonlinear pricing with bundling

The practice of setting marginal prices below marginal costs is so common in telecommunications offerings that it can justifiably be labeled a stylized fact. In this paper, we present a stylized model that establishes conditions under which this practice is economically efficient and profit-maximizing. A multiproduct monopolist who sells some of his goods according to a nonlinear price schedule, while selling the remaining goods at linear prices, is said to use a mixed price structure. We develop a simple model to characterize welfare- and profit-maximizing mixed prices. It is shown that standard results obtained separately for linear and nonlinear prices do not hold when mixed prices are used. In particular, the marginal price facing the largest buyer can be above or below marginal cost. The result is shown to depend on whether the goods are substitutes or complements. Implications of these results for telecommunications prices are derived, and the intuition underlying our stylized fact is developed.     

Beyond Icebergs: Towards a Theory of Biased Globalization

In contrast to domestic trade, international trade inherently requires more intensive use of skilled labour with expertise in areas such as international business, language skills, and maritime insurance, and the transoceanic transportation is more capital intensive than the local transportation. In the presence of such bias in factor demands, globalization caused by an improvement in the export technologies can lead to a worldwide increase in the relative prices of the factors used intensively in international trade. Furthermore, a worldwide increase in the factors used intensively in international trade can lead to globalization. To capture these effects, we develop a flexible approach to model costly international trade, which includes the standard iceberg approach as a special case. More specifically, we extend the Ricardian model of trade with a continuum of goods by introducing multiple factors of production and by making technologies of supplying goods depend on whether the destination is home or abroad. If the technologies of supplying the same good to the two destinations differ only in total factor productivity, the model becomes isomorphic to the Ricardian model with the iceberg cost. By allowing the two technologies to differ in the factor intensities, our approach enables us to examine the links between factor endowments, factor prices, and globalization that cannot be captured by the iceberg approach.     

Monopoly,intermediate goods and the pure theory of international trade

Conclusion In a model with two traded good sectors between which intersectoral flows of intermediate goods are allowed and with a monopolized non-traded good sector, the wage rate in terms of two traded goods increases and the rental of capital in terms of two traded goods decreases when the price of relatively more labor intensive traded good sector increases, though nothing definite can be said about the direction of change in the wage rate and rental in terms of the non-traded good. When prices of traded goods are kept constant and labor and/or capital increase(s), output of the non-traded good sector increases provided that the non-traded good is not inferior, having income elasticity of demand less than unity. The factor intensity condition for the traded goods is in general not sufficient for the validity of the Rybczynski theorem to hold with respect to net outputs of the traded goods. We have derived sufficient conditions for the magnification effect to be observed with respect to net outputs of the traded good sectors. Specifically, we have shown that the factor intensity condition (23) is sufficient for the magnification effect to prevail when only labor increases.     

Are there bubbles in Chinese RMB–dollar exchange rate? Evidence from generalized sup ADF tests

This article uses recently developed generalized sup ADF (GSADF) unit root tests into the analysis of nominal RMB–dollar exchange rates bubbles. Based on the results from the GSADF tests, we find strong evidence of explosive behaviour in the nominal exchange rate and investigate two bubbles there. The first bubble is during 2005–2006 which is determined neither by the relative prices of traded goods nor the relative price of nontraded goods. The second bubble busts in 2008 during subprime crisis period, and which is determined by the relative prices of traded goods but not the relative price of nontraded goods. There is no bubble before 2005 as the exchange rate is under fixed regime. As for this result, some expansionary monetary and fiscal policies are required in China since these are the most efficient and effective under a bubble burst scenario.     

Free trade and factor-price polarization

Factor-price equalization between trading partners is perhaps the best known implication of the Heckscher-Ohlin-Samuelson model of production and trade. It has long been known that with more primary factors than goods, this result is not necessary. Recent studies have investigated effects of changing prices on factor payments in the three-factor, two-good trade model. This short note emphasizes that when such an economy moves from autarky to free trade, payment to a relatively cheap factor may fall, ‘polarizing’ factor prices. Conditions favoring this outcome are examined.     

Non-Traded Goods and Real Exchange Rate Fluctuations: A Structural VAR Analysis

Real exchange rate variance decompositions indicate that only a small fraction of real exchange rate movements can be attributed to changes in the relative price between traded and non-traded goods. This paper argues that those exercises, by ignoring the nature of the shocks behind real exchange rate changes, may be inadequate to measure the relative importance of non-traded goods prices. Instead, it proposes using a structural vector autoregression (SVAR) model to study the effects of shocks to the relative supply and relative demand for non-traded goods on the real exchange rate. The SVAR model is identified via long-run restrictions and is estimated for a group of advanced economies. The results indicate that for some countries, relative supply shocks can be a significant source of real exchange rate fluctuations.     

The aggregate elasticity of factor substitution with middle products

The elasticity of substitution between factors in production relates the change in the ratio of factors used in a production process to a given change in the factor price ratio. An aggregate concept of such an elasticity relates a change in overall factor endowments to the resulting change in factor prices. For a closed economy the behavior of consumers is an important part of such an aggregate elasticity, since endowment changes can bring about changes in commodity prices and resulting adjustments to factor prices. For a small open economy, commodity prices in typical models are exogenous. In the model with middle products, all final consumer goods are non-traded, so that local consumer behavior can affect factor prices. The aggregate elasticity of substitution is shown to be an average of production elasticities and demand elasticity even for a small open economy.     

Erratic monetary policy and the dispersion of commodity prices

This paper develops a closed economy macroeconomic model with many goods, where information flows are not instantaneous. Economic agents form rational expectations of future economic variables based on present information, and measure the future price level with a true cost-of-living index that allows for substitutions among commodities as relative prices change. The major inference drawn from our model is that, when information flows are imperfect, an increase in the variance of the money supply injects noise into economic agents forecasts of prices, and increases the equilibrium level of dispersion in commodity prices.     

The Setting of Retail Prices in a Customer Market*

This paper extends the theory of the determination of retail prices in a customer market to a shop selling many types of goods. For a multi-good shop, a discontinuous marginal revenue function for each good sold is derived. Under reasonable assumptions the size of this discontinuity depends only on the customer dynamics and is independent of own-price elasticities and cross-price elasticities. A discussion of the determination of producer prices shows how the theory can explain the relative stability of retail prices.     

ω‐Homothetic Preferences: Theory and Applications

This paper develops a new class of homothetic preferences which generate Marshallian demand curves for individual goods which can be concave, convex or linear in own price under the assumption that agents treat aggregate price indices as given (as in Dixit‐Stiglitz, 1977). The preferences are represented by a cost function which has two parameters: one determining the curvature of the Marshallian demand; the other determining the elasticity of demand when all prices are equal. The elasticity of demand varies with relative prices. Illustrative examples are given of Cournot duopoly and exchange rate pass‐through.