This paper presents a fully rational general equilibrium model that produces a time-varying exchange rate risk premium and solves the uncovered interest rate parity (U.I.P) puzzle. In this two-country model, agents are characterized by slow-moving external habit preferences similar to Campbell &...

We examine the bilateral trade patterns of countries involved in significant trade liberalizations using detailed data on the value of trade flows by commodity. We find a striking relationship between a good's pre-liberalization share in trade and its growth subsequent to liberalization. The...

This paper addresses the question of whether goods or asset market frictions are necessary to explain the failure of consumption risk sharing across countries. I present a multi-country DSGE model with Armington specialization. There are iceberg costs of shipping goods across countries. In asset...

We argue that labor mobility does not lead to a ''race to the bottom,'' where countries drastically cut redistributive transfers in order to attract skilled workers. The basis of our argument is that these cuts are not credible policies. We propose a two country model where competition for...

Over the past twenty years, U.S. import prices have become less responsive to the exchange rate. We propose that this decline is a result of increased trade integration. To illustrate this effect, we develop an open economy DGE model in which there is strategic complementarity in price setting...

This paper exploits the division of Germany after the Second World War and the re-unification of East and West Germany in 1990 as a natural experiment to provide evidence of the importance of market access for economic development. In line with a standard new economic geography model, we find...