Recent discussions of exchange rate determination have emphasized the possible role of foreign direct investment in influencing exchange rate behavior. Yet, there are few existing models of multinational enterprises (MNEs) and endogenous exchange rates. This article demonstrates that the entry...

Recent discussions of exchange rate determination have emphasized the possible role of foreign direct investment in influencing exchange rate behavior. Yet, there are few existing models of multinational enterprises (MNEs) and endogenous exchange rates. This paper demonstrates that the entry...

The elasticity of substitution between goods from different countries—the Armington elasticity—is important for many questions in international economics, but its magnitude is subject to debate: the "macro" elasticity between home and import goods is often found to be smaller than the...

This paper presents a new model of Bertrand competition between heterogeneous firms in the open economy where the macroeconomic distribution of markups responds to the degree of trade openness and the underlying level of technology in each trading partner. The model's simple closed-form...

The elasticity of substitution between goods from different countries---the Armington elasticity---is important for many questions in international economics, but its magnitude is subject to debate: the "macro" elasticity between home and import goods is often found to be smaller than the...

Does the mere presence of big banks affect macroeconomic outcomes? Gabaix (2011) shows that idosyncratic shocks can have aggregate effects if the distribution of firm sizes in manufacturing follows a power law distribution. Our contribution is two-fold. First, we expand the theory of granularity...

Does the mere presence of big banks affect macroeconomic outcomes? Gabaix (2011) shows that idosyncratic shocks can have aggregate effects if the distribution of firm sizes in manufacturing follows a power law distribution. Our contribution is two-fold. First, we expand the theory of granularity...

Does the mere presence of big banks affect macroeconomic outcomes? In this paper, we develop a theory of granularity (Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups. Using this framework, we show conditions under which...

Does targeted financial development favor small firms or large ones? And how do resulting changes in the distribution of firm size affect aggregate outcomes? We assess the macroeconomic implications of known stylized facts from the finance literature regarding firm size and financial frictions...