This paper considers the adaptability of estimation methods for binary response panel data models to multiple fixed effects. It is motivated by the gravity equation used in international trade, where important papers such as Helpman, Melitz and Rubinstein (2008) use binary response models with...

We introduce elements of state-dependent pricing and strategic complementarity into an otherwise standard New Open Economy Macroeconomics (NOEM) model. Relative to previous NOEM works, there are new implications for the dynamics of real and nominal economic activity: complementarity in the...

With over 300 stores in 40 countries, IKEA is a major international presence in retail housewares and furnishings. IKEA publishes country-specific catalogs with local-currency prices guaranteed to hold for 1 year. This paper explores a new dataset of IKEA products and catalog prices covering six...

There are two stark views of the forces driving aggregate real exchange rates in the short-run. One view is that all of the variance is accounted for by non-traded items in the CPI basket (the classical dichotomy view), the other, due to Engel (1999), claims the opposite, with all of the...

This paper extracts information on inflation expectations, the real interest rate, and various risk premiums by exploring the underlying common factors among the actual inflation, University of Michigan consumer survey inflation forecast, yields on U.S. nominal Treasury bonds, and particularly,...

The classical dichotomy predicts that all of the time series variance in the aggregate real exchange rate is accounted for by non-traded goods in the CPI basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) found that traded goods had comparable volatility to...

I measure the extent of international market segmentation using local, national, and international Big Mac prices. I show that the bulk of time-series price volatility observed across the United States arises between neighboring locations. Using these data, I provide new estimates of border...

The recent financial crisis, Europe’s sovereign debt problems and the U.S. political dispute about raising the national debt ceiling have prompted fiscal policy debate about the size of government and the type of tax structure needed to fund public expenditures. ; Government revenue of the...

The classical dichotomy predicts that all of the time series variance in the aggregate real exchange rate is accounted for by nontraded goods in the CPI basket because traded goods obey the Law of One Price. In stark contrast, Engel (1999) found that traded goods had comparable volatility to the...

Globalization is the process of increasing economic interdependence among nations. It is reflected in the growth of cross-border trade in goods and services. Ideas, like goods and services, also flow across borders and their globalization is well under way. ; Quantifying that flow is difficult;...