"The Factor Content of Trade When Countries Have Different Technologies" (with Kathryn Marshall)
Abstract
We develop two simple modifications of Heckscher-Ohlin-Vanek theory for countries with heterogeneous technologies: virtual endowments and modified Rybczynski effects. Virtual endowments predict factor trade using a reference country's technology. Modified Rybczynski effects show the domestic factor content of changes in foreign endowments. The empirical implications are striking. There is no missing trade, and we predict the direction of trade with significance levels exceeding 99%. We make no assumptions about home bias in consumption, not traded goods, trade costs, or trade in intermediate inputs. We make no corrections to measured endowments and estimate nothing; the data speak for themselves.
"The Structure of the American Economy" (with Kathryn Marshall)
Abstract
We explore the relationship between input-output accounts and the national revenue function. The generalized inverse of an economy's technology matrix carries information relating changes in endowments with changes in outputs; its transpose relates output prices and factor prices. Our primary theoretical contribution is to derive an economy's revenue function for an arbitrary Leontief technology. Our main empirical contribution is to compute the national revenue function for the American economy in 2003 and to describe its properties. We implement our ideas using two different models: one where all factors are mobile and another with capital specific to each sector in the economy.
Abstract
We develop a classroom experiment on exchange rate determination appropriate for undergraduate courses in macroeconomics and international economics. Students represent citizens from different countries and need to obtain currency to purchase goods. By participating in an auction to buy currency, students gain a better understanding of currency markets and exchange rates. The implicit framework for exchange rate determination is one in which prices are perfectly flexible (in the long run) so that purchasing power parity (PPP) prevails. Additional treatments allow students to examine the impact of price changes, tariffs and nontradable goods on the exchange rate and to explore the possible resulting deviations from PPP. The experiment is suitable for classes of eight to 50 students and can be run in as little as 30 minutes.
"The Decline of Manufacturing Employment in the United States” (with Peter Rupert)
Abstract
This paper uses panel data from the several states to assess the sources of the decline in manufacturing employment from 1986 through 2001. It estimates and calibrates a structural model where each state is a small open economy with a manufacturing sector and a service sector. The common rate of Hicks-neutral technological progress in manufacturing is 2.1% per annum and that in services is 0.5% per annum. Technological progress accounts for a loss of 1.6 million manufacturing workers, changes in international economic conditions account for a loss of 0.6 million workers, and changes in state tax policies account for a loss of 4 million workers.
“Relativity in
Trade Theory: Towards a Solution to the Mystery of Missing Trade” (with
Abstract
Using OECD input-output matrices consistently, we offer a tentative solution to
the mystery of missing trade. First, we confirm
the usual rejection of factor price equalization and identical
technologies. Second, we develop a new
technique to compute factor content of trade when countries’ technologies are
different. Measuring factor content conventionally,
we find a putative paucity of trade in these data. When factor content is measured correctly, theory
predicts the direction and volume of trade much more accurately. Thus measuring the factor content of trade according
to the country of origin may vindicate the Heckscher-Ohlin-Vanek
paradigm.
“The Evolution of Comparative Advantage” (with Fernando Vega-Redondo)
Abstract
We study the evolution of comparative advantage in a model with two countries
and ℓ≥2 goods. We show that
the stochastically stable set consists of the pattern of production that
follows the chain of comparative advantage in a sufficiently large world
economy. Also, the chain of comparative
advantage has an elegant structure that allows for step-by-step evolution. So convergence towards the equilibrium where
each good is produced in the "right" country is fairly rapid.
“Exploring Elements of Exchange Rate Theory in a Controlled Environment”
Abstract
This paper analyzes the simple implications of exchange rate theories in the
laboratory. It shows that purchasing
power parity, covered interest parity, and uncovered interest parity fare well
in simple environments. Not-traded goods
and non-stationary domestic prices do cause deviations from these elements of
exchange rate theories. But the
experimental evidence indicates that non-stationary domestic prices have a much
stronger effect than not-traded goods in causing deviations from purchasing
power parity and the two interest parity conditions.
"Explaining Bubbles in Experimental Asset Markets"
Abstract
Using experimental data from asset markets without short selling,
this paper shows that bubbles arise for two reasons. First, subjects take
time to learn about the dividends, not trusting initially the experiment's
instructions. Second, agents have heterogeneous prior beliefs. These data
support a Bayesian model of asset prices against the alternative hypothesis
that agents have common priors agreeing with the actual distribution of
fundamentals. This evidence confirms a subtle version of rational
expectations in which assets are priced according to agents’ priors and the
market’s history.
"Experiments with Arbitrage across Assets"
Abstract
This paper is a short synopsis of some of the literature on experiments in
international finance, and it will be published in Plott
and Smith's Handbook of Experimental Economic Results.