We derive a micro-founded measure of bilateral trade integration that is consistent with a broad range of leading gravity models. This measure accounts for cross-industry heterogeneity by incorporating substitution elasticities estimated at the industry level. We then use it to provide a...

This paper derives a micro-founded gravity equation based on a translog demand system that allows for flexible substitution patterns across goods. In contrast to the standard CES-based gravity equation, translog gravity generates an endogenous trade cost elasticity. Trade is more sensitive to...

What has driven trade booms and trade busts in the past and present? We employ a micro-founded measure of trade frictions consistent with leading trade theories to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of...

Did the gold standard diminish macroeconomic volatility? Supporters thought so, critics thought not, and theory offers ambiguous messages. Hard regimes like the gold standard limit monetary shocks by tying policymakers' hands; but exchange-rate inflexibility compromises shock absorption in a...

Risky arbitraging based on interest rate differentials between two countries is typically referred to as a carry trade. Up until the recent global financial crisis, these trades generated years of persistent positive returns, which were hard to reconcile with standard pricing kernels. In 2008...