The combination of substantial terms of trade variability and unstable correlation patterns of trade prices with output and trade volumes has led some to suggest a break in the link between trade volumes and prices. We find that oil accounts for much of the variation in the terms of trade over...

The international financial crises and deepening world-wide recession remind us that the economic fates of nations are tightly linked. How do different models perform in explaining correlated business cycles? This paper compares the performance of two types of international real business cycle...

International business-cycle models assume that home and foreign goods are poor substitutes. International trade models assume they are close substitutes. This paper constructs a model where this discrepancy is due to frictions in distribution. Imports need to be combined with a local non-traded...

An important challenge for macroeconomics is to understand the reasons that retail prices change infrequently and the implications of this pricing behavior for economic welfare and allocative efficiency. This paper develops a menu cost model of pricing in which retail firms intermediate trade...

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...

We study deviations from the Law-of-One-Price using microeconomic data on the retail prices of approximately 220 individual goods and services across 122 cities located in 79 countries over the period from 1990 to 2000.

We use cross sectional data on local currency prices of over 1800 goods across 13 European countries to examine deviations from the law of one price. We find that an average (across goods for a particular country) of ratios of foreign to domestic prices provides a surprisingly accurate...