01964cas a2200253 a 4500 AALejournalIMF008382 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451847536 1018-5941 BD-DhAAL BD-DhAAL Naknoi, Kanda. Trade Costs, Market Integration, and Macroeconomic Volatility / Kanda Naknoi, Allan Brunner. Washington, D.C. : International Monetary Fund, 2003. 1 online resource (49 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students This paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, et cetera). The model is a extension of Obstfeld and Rogoff (1995). Naturally, a reduction in trade costs leads to more market integration, as the relative price of foreign goods falls and households increase their consumption of imported goods. In addition, with more market integration, the model predicts that the variability of the real exchange rate should fall, while the variability of the trade balance should increase. Trade costs have ambiguous effects on the volatility of other macro variables, such as income and consumption. Finally, we present some empirical findings that provide mixed support for the model's predictions. Mode of access: Internet Brunner, Allan. IMF Working Papers; Working Paper ; No. 2003/054 Full text available on IMF http://elibrary.imf.org/view/journals/001/2003/054/001.2003.issue-054-en.xml IMF e-Library