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Entry, Trade Costs and International Business Cycles Documento de trabajo uri icon


  • Important interaction between entry and investment, as the two can be used for consumption smoothing. Entry dampens the volatility of investment and helps the model to have a better fit for the second moments of all aggregate variables. Regarding prices, the model delivers a negative correlation between the ratio of relative consumption and the real exchange rate, reverting the so-called Backus-Smith Puzzle, but only under certain assumptions of how price indices are constructed. Given the novel results of the model, we explore the role of each intensive margin and find a strong complementarity between the two. Absent any, the model loses some of its nice features. Finally, we discuss how results vary under different financial structures. Our findings indicate that the degree of completeness in international financial markets matter for the micro dynamics of the model, even with low persistent shocks.

fecha de publicación

  • 2010