Did Leaving the Gold Standard Tame the Business Cycle? Evidence from NBER Reference Dates and Real GNP

Cover and Pecorino (2005) claim that the March 1933 departure from the gold standard is the most probable break point ushering in an era of longer U.S. expansions, both absolutely and relative to subsequent recessions. Their analysis is based on cycle durations as defined by National Bureau of Economic Research (NBER) reference dates. However, much of macroeconomic analysis is based on (i) growth cycles (i.e., periods when the economy's production is above or below trend) rather than absolute increases or decreases in economic activity; and (ii) aggregate time series' volatility as the prime indicator of macroeconomic stability. In light of this, we reevaluate the March 1933 break point. First, using HP‐filtered quarterly gross national product (GNP), our analysis of growth cycle durations still implies a break point near 1933. Second, we test for structural breaks in the volatility of GNP growth rates and deviations from trends. These tests suggest a structural break considerably later than 1933, perhaps as late as the 1950s.     

Not all trade restrictions are created equally

There has been great focus in the recent trade theory literature on the introduction of firm heterogeneity into trade models. This introduction has highlighted the importance of the entry/exit decision of firms in response to changes in trade barriers. However, it is typical in many of these models to use iceberg transport costs as a general form of trade barriers that can be interchangeable with ad valorem tariffs. I show that this is not always an appropriate conclusion. Specifically, I illustrate that profit for an exporter is more elastic in response to tariffs than iceberg transport costs, which affects the entry/exit decision of firms. This has implications for welfare analysis and empirical specifications.     

Variety,Globalization, and Social Efficiency

The standard formal presentation of the Dixit‐Stiglitz‐Krugman (DSK) model of monopolistic competition with a constant‐elasticity‐of‐substitution (CES) utility function supposes a sufficient number of firms so that the elasticity of demand facing each variety is approximated by a constant elasticity of substitution. Such a formulation forces economies of scale to be frozen so that firm size never changes. We use a Bertrand‐Nash interpretation of the equilibrium that allows the elasticity of demand facing each variety to depend on the number of varieties, thus allowing the gains from globalization to reflect both the increase in variety and the exploitation of economies of scale. We also develop a precise expression for per capita real income with any number of sectors and examine the age‐old question of the socially optimal number of varieties.