We develop a quantitative theory of endogenous uncertainty and business cycles. In the model, higher uncertainty about fundamentals discourages investment but agents can learn from the actions of others. Therefore, in times of low activity information flows slowly and uncertainty stays high,...

When trade is costly within countries, international trade leads to concentration of economic activity in locations with good access to foreign markets. Costly trade within countries also makes it hard for remote locations to gain from international trade. We investigate the role of these forces...

How are the gains distributed across individuals? What is the relative importance of income and consumption effects? First, we use survey data from a small open economy during 20 years to measure how international price variation impacted on the distribution of welfare through income and...