Global Rebalancing with Gravity: Measuring the Burden of Adjustment

Varieties and the transfer problem

“…Some authors have suggested that rebalancing may bring about only modest movements in real exchange rates. For instance, Dekle et al (2007Dekle et al ( , 2008 have argued that a transfer of the size of the U.S. deficit requires a very limited correction in international relative prices and labor costs. 2 Other authors have taken the opposite stance.…”

The welfare consequences of import tariffs: A quantitative perspective

“…14 The expression for the expenditure shares follows from the fact that price indices are unit expenditure functions.…”

“…The observation that tariffs t ij andt ij differentially affect variable profits in the presence of monopolistic competition has important consequences for the extensive margin. In order to see this, we follow CR (equation (14)) and express the aggregate price of imports from country i in country j as:…”

Real Adjustment of Current Account Imbalances with Firm Heterogeneity

“…1 In their model with representative firms, Corsetti, Martin, and Pesenti (2008) find that the extensive margin of trade dampens the required depreciation of the exchange rate as new varieties are exported and the adjustment occurs for a lower change in terms of trade. In the same vein, Dekle, Eaton, and Kortum (2008) have shown that a transfer of the size of the U.S. current account deficit requires a small adjustment in the relative wages of surplus countries vs. deficit countries. 2 This paper emphasizes how the dispersion of firm sizes may affect the global rebalancing and the size of the secondary burden of a transfer.…”

“…2 In their multilateral model calibrated to 40 countries using 2004 data on GDP and bilateral trade, Dekle, Eaton, and Kortum (2008) show that the wage of the largest deficit country (United States) falls by 10 percent relative to the largest surplus country (Japan). two-country general equilibrium model with a tradable and a nontradable sector.…”