learning to believe in sunspots a number of authors have shown that competitive economies may possess sunspot equilibria that is rational expectations equilibria in which purely extrinsic uncertainty affects equilibrium prices and allocations 2 such results demonstrate that it does not require a lack of faith in the rationality of market participants to believe that competitive markets may be subject to purely speculative fluctuations driven solely by expectations 3 the mere existence of sunspot equilibria as solutions to a system of marketclearing conditions however might not be judged sufficient to indicate that competitive markets with rational participants could ever be subject to speculative instability the sunspot equilibria represent states of affairs in which agents act differently in the case of different realizations of the sunspot variable and it is rational for each agent to do so but it might be thought unlikely that the beliefs of all the participants in the market could ever come to be coordinated so as to bring about an equilibrium of that kind it is rational to believe that sunspots convey information about future states of affairs once the economy is in a sunspot equilibrium but why would rational agents ever begin to believe in such a thing so as to create the conditions under which the belief is rational in order to address such a question one must go beyond the mere statement of the conditions for equilibrium and discussion of what states of affairs satisfy them one must specify an explicit dynamic process according to which the beliefs of agents adjust when out of equilibrium any exercise of this kind is necessarily unsatisfactory as there is no univocal meaning for the postulate of rational behavior outside of an equilibrium it may well be the case that

policy change and learning in the rbc model what is the impact of surprise and anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations we examine this issue using the standard stochastic real business cycle model with lump sum taxes agents combine knowledge about future policy with econometric forecasts of future wages and interest rates dynamics under learning can have large impact effects and a gradual hump shaped response and tend to be prominently characterized by oscillations not present under rational expectations these fluctuations reflect periods of excessive optimism or pessimism followed by subsequent corrections

north american migration returns to skill border effects and mobility costs utilizing a utility maximizing roy type discrete choice model of worker location in canadian provinces and u s states that incorporates returns to skill amenities fixed costs distance langua

dark costs missing data shedding some light on services trade a structural gravity model is used to estimate barriers to services trade across many sectors countries and time since the disaggregated output data needed to infer border barriers flexibly are often missing for services this paper derives a novel methodology for projecting output data the empirical implementation sheds light on the role of institutions geography size and digital infrastructure as determinants of border barriers the paper finds that border barriers have generally fallen over time but there are differences across sectors and countries notably border effects for the smallest economies have remained stable giving rise to a divergent pattern across countries

intra national home bias new evidence from the united states commodity flow survey abstract this paper estimates the us intra national home bias in trade using poisson pseudo maximum likelihood methodology to complement and extend wolf s 2000 work we use wolf s data from the 1993 commodity flow survey cfs and add the 1997 2002 2007 and 2012 waves we claim that wolf s home bias magnitude is overestimated due to the log linearization of the gravity equation and the control for distance used in the cross sectional study our results with panel data and latest econometric estimators show that the levels of us states home bias are in between 50 and 60 lower than in wolf s however since 2002 the home bias has experienced substantial growth which suggests that the us market is less commercially integrated in 2012 than in 1993

the economic significance of national border effects to address the economic significance of national border effects this paper provides evidence on two fundamental questions 1 do large border effects arise because of high perceived price wedges between foreign and domestic products or because imports and domestic goods are very close substitutes and 2 if price wedges are important do they reflect distortionary barriers to trade or do they arise from nondistortionary factors such as differences in transactions costs or product characteristics i conclude that while border effects may imply barriers welfare costs and a role for policy distortions are probably not as substantial as initial border results suggested jel f1

immigration and trade creation econometric evidence from canada immigrants may expand trade with their country of origin owing to superior knowledge of or preferential access to market opportunities the authors test this proposition using canadian trade data with 136 partners from 1980 to 1992 in an augmented gravity equation they find that a 10 percent increase in immigrants is associated with a 1 percent increase in canadian exports to the immigrant s home country and a 3 percent increase in imports they also find that among the primary categories of immigrants independents have the greater influence on trade immigration via the entrepreneur class appears to have less impact on trade than all other classes except refugees

expectations learning and business cycle fluctuations this paper explores an alternative theory based on learning dynamics in the con text of an otherwise standard stochastic growth model we consider an environment in which households and firms have an incomplete model of the macroeconomy knowing only their own objectives constraints and beliefs agents are optimizing have a completely specified belief system but do not know the equilibrium map ping between primitive disturbances the aggregate state of the economy and mar ket clearing prices by extrapolating from historical patterns in observed data they approximate this mapping to forecast variables that are exogenous to their decision problems such as the rental rate of capital and the real wage this belief structure has the property that beliefs affect the true data generating process of the economy which in turn affects belief formation the economy is therefore self referential shifts in beliefs about future returns to labor and capital affect current market clear ing prices which in turn can reinforce beliefs in this environment current prices can become less informative about future economic conditions generating fluctuations in real activity this kind of mechanism driving business cycle fluctuations is found in early writ ings on macroeconomic dynamics for example alfred c pigou 1927 on page 122 writes

bridging trade theory and labour econometrics the effects of international migration this paper surveys current theoretical and empirical research on international migration with a particular emphasis on the links between trade theory and labour empirics

immigrant links to the home country empirical implications for u s bilateral trade flows immigrants ties to their home countries can play a key role in fostering bilateral trade linkages immigrant ties include knowledge of home country markets language preferences and business contacts that have the potential to decrease trading transaction costs empirical results for the united states suggest that immigrant links have historically been important in increasing bilateral trade flows with immigrants home countries copyright 1994 by mit press

the hazard rate from unemployment when the search environment is characterised by a decreasing probability of offer abstract when the search environment is stationary the job search model predicts a monotone increasing hazard rate from unemployment we show that when the searcher faces a decreasing probability of offer the hazard may be monotone decreasing or non monotone the implications of these results for data analysis are discussed

an exploration of the eductive justifications of the rational expectations hypothesis this paper examines justifications of the rational expectations hypothesis that rely on the analysis of the agents mental forecasting educing activity which involves forecasting the forecasts of others etc the corresponding concept of eductive learning stability based on the game theoretical concept of rationalizability is primarily used within the classical muth model conditions for coordination of beliefs are interpreted and discussed they are robust to the introduction of noise more generally eductive stability fits economic intuition on coordination stability increases when the industry product differentiation increases and when decisions are sequential and observable copyright 1992 by american economic association

border effects in the enlarged eu area evidence from imports to accession countries by looking at imports of eastern european countries we provide novel insights on the importance and magnitude of border effects and on how they are linked with technical barriers to trade all central eastern european countries ceecs traded with themselves more than with other countries we grouped products into three categories depending on the importance of applicaple technical barriers our results show border effects are the largest for products where we expect to have the most important technical barriers we assess if border effects changed over the transition period and we find that for products where technical barriers are less important the magnitude of border effects was declining at the end of the 90s

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

interest rate control and nonconvergence to rational expectations this paper investigates the feasibility of a monetary policy aimed at pegging the nominal rate of interest it shows that under general conditions such a policy would produce the well known cumulative process despite the fact that there exists a well behaved rational expectations equilibrium with no tendency for inflation to accelerate or decelerate the cumulative process shows up as the failure of learning to converge to rational expectations specifically the paper shows first in a conventional is lm model with an expectations augmented phillips curve and then in a micro based finance constraint model that if people follow any learning rule based on experience that satisfies a weak condition then the sequence of temporary equilibria under a policy of interest pegging cannot converge the nonconvergent path that will be observed accords with the familiar cumulative process in that inflation accelerates if the market rate of interest has been pegged below the natural rate

empirical evidence on the sign of the slope of the hazard rate from unemployment from a fixed effects model empirical evidence on the sign of the slope of the hazard rate from unemployment is obtained from a fixed effects model based on the gamma distribution for unemployment duration the data used are pairs of unemployment spells for adult males in the control and experimental groups of the denver income maintenance experiment the sample selection issue involved in selecting the pair of spells used in the empirical work is discussed the empirical results suggest that for these samples the hazard function is monotone decreasing and support the assumptions that the first two spells of unemployment are identically distributed and can be modelled using the gamma distribution

trade flows in a spatial oligopoly gravity fits well but what does it explain large distance and border effects on trade flows in some industries may result from the collusive division of geographic markets in the brazilian cement industry traditional gravity equations fit the data well yet limited regional flows are due to firms strategic behaviour thanks to a unique institutional setting and an unusually rich data set i directly control for trade costs which despite their importance cannot account for the observed segmentation of local markets at current prices the paper highlights how collusive behaviour can magnify the effects of distance as firms use geography to coordinate on higher prices and less cross hauling les effets de grande distance et de frontieres sur les flux de commerce dans certaines industries peuvent etre le resultat d une division collusive des marches geographiques dans l industrie bresilienne du ciment les equations de gravite s ajustent bien aux donnees mais les flux regionaux limites entre regions sont attribuables au comportement strategique des firmes gr ce a un contexte institutionnel unique et a une base de donnees inhabituelles l auteur a pu prendre en compte directement les couts du commerce qui malgre leur importance ne peuvent pas expliquer la segmentation observee des marches locaux aux prix courants le memoire met en lumiere comment le comportement de collusion peut magnifier les effets de distance a proportion que les firmes utilisent la geographie pour assurer une coordination fondee sur des prix plus eleves et moins de transport transfrontalier

networks and the disappearance of the intranational home bias abstract previous studies have shown that not only countries but also regions have a preference to trade within their administrative borders using unique trade flows data we also find a large home bias in spanish intranational trade however we show that this home bias tends to disappear once we take into account the higher density of social and business networks within regions than between regions we also find that the home bias does not disappear if intranational trade flows are measured in quantity rather than value this fact might explain why previous studies on other european countries still find an intranational home bias even when network effects are taken into account

national borders and international trade evidence from the european union in this paper the impact of national borders on international trade within the european union is considered using a gravity model i find that averaged over all eu countries intranational trade is about ten times as high as international trade with an eu partner country of similar size and distance this relatively strong home bias suggests that even within the european union national borders still have a decisive impact on trade patterns jel classification f02 f14 f15 o52 ce memoire examine l impact des frontieres nationales sur le commerce international a l interieur de l union europeenne on montre que en moyenne pour tous les pays de l union europeenne le commerce intranational est a peu pres dix fois plus important que le commerce international avec un pays partenaire de l union europeenne de meme taille et a meme distance ce degre relativement important de preference nationale suggere que meme dans le cadre de l union europeenne les frontieres nationales ont encore un impact determinant sur les patterns de commerce

migrants ancestors and foreign investments we use 130 years of data on historical migrations to the u s to show a causal effect of the ancestry composition of u s counties on foreign direct investment fdi sent and received by local firms to isolate the causal effect of ancestry on fdi we build a simple reduced form model of migrations migrations from a foreign country to a u s county at a given time depend on 1 a push factor causing emigration from that foreign country to the entire u s and 2 a pull factor causing immigration from all origins into that u s county the interaction between time series variation in origin specific push factors and destination specific pull factors generates quasi random variation in the allocation of migrants across u s counties we find that doubling the number of residents with ancestry from a given foreign country relative to the mean increases the probability that at least one local firm engages in fdi with that country by 4 percentage points we present evidence that this effect is primarily driven by a reduction in information frictions and not by better contract enforcement taste similarities or a convergence in factor endowments

the disappearance of the border barrier in some european union countries bilateral trade this paper estimates the tariff equivalent of the border barrier in each bilateral trade among european union countries the results show that there are large differences in the border barrier across european union countries bilateral trade in some bilateral trade flows the border barrier has almost disappeared whereas in other cases it is still equivalent to a 75 per cent tariff the results also show that some countries have low border barriers in most of their bilateral trade flows with other eu members whereas other countries persistently present large border barriers

rationalizable foresight dynamics abstract this paper proposes and studies the rationalizable foresight dynamics a normal form game is repeatedly played in a random matching fashion by a continuum of agents who make decisions at stochastic points in time a rationalizable foresight path is a feasible path of action distribution along which each agent takes an action that maximizes his expected discounted payoff against another path which is in turn a rationalizable foresight path we consider a set valued stability concept under this dynamics and compare it with the corresponding concept under the perfect foresight dynamics

internal trade productivity and interconnected industries a quantitative analysis does trade within a country affect welfare and productivity what are the magnitude and consequences of costs to such trade to answer these questions we exploit unique canadian data to measure internal trade costs in a variety of waysthey are large and vary across sectors and provinces to quantify their consequences for welfare and productivity we use a recent multi sector trade model featuring rich inputoutput relationships we find interprovincial trade is an important contributor to canada s gdp and welfare though there are significant costs to such trade reducing interprovincial trade costs by 10 yields aggregate gains of 0 9 eliminating our preferred estimates of costs gains average between 3 and 7 equivalent to real gdp gains between 50 billion and 130 billion finally as policy reforms are often sector specific we liberalize sectors one at a time and find gains are largest in highly interconnected industries

price dispersion and the border effect abstract cross country price differences could reflect regional market segmentation within countries or national segmentation at the border in a search based model of price setting identifying national versus regional segmentation requires data on regional trade flows a calibration to u s and canadian data implies predominantly regional frictions u s producers are three times more likely to sell in their home region than another u s region and canadian producers are seven times more likely to sell in their home region than another canadian region frictions vis a vis foreign regions are only slightly higher models that ignore regional segmentation can misstate the severity of frictions at the border

migration and trade theoretical and empirical research in economics suggests that bilateral migration triggers bilateral trade through a number of channels this paper assesses the functional form of the impact of migration on trade flows in a quasi experimental setting we provide evidence that the relationship is not log linear in particular at small levels of immigration stocks the elasticity of trade to migration is quite high and it declines to zero at about 4 000 immigrants if immigration stocks exceed such a level the evidence suggests that trade will not increase anymore this suggests that for cross country network and other effects flowing from immigration to materialise at a significant level for trade a high enough level of immigrant stocks is necessary but there appears to be satiation as immigrant numbers increase

towards a new trade policy between the usa and middle east countries estimating trade resistance and export potential at the time of the conclusion of free trade areas ftas between the usa and middle east and north african mena countries there is a lack of literature concerning the measurement of the current us export position with regards to these countries and the us export potential in this area from recent developments of gravity models this paper derives an estimable equation which includes various trade resistance variables notably border effects multilateral resistance as well as specific bilateral effects the model is tested in order to scrutinise the impact of these variables on us exports to mena countries as well as the us export potential in this area to that end a selection of panel data specifications is proposed mainly hausman and taylor models as well as arellano and bond dynamic models results unambiguously indicate that as compared to the other oecd countries the usa suffers from a substantial trade integration deficit with mena countries this is reflected by the strongly negative values of the us mena bilateral fixed effects as well as the high bilateral border effects in addition the estimated actual potential us export ratio to these countries is only 0 76 therefore implementing an fta between the usa and mena countries may allow the former to progressively improve its export position in this area this would also help mena countries diversify their supplying sources

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

within u s trade and the long shadow of the american secession using data from the us commodity flow surveys we show that the historical union confederacy border lowers contemporaneous trade between us states by about 16 percentrelative to trade flows within the former alliances amongst one million placebos there is no other constellation of state grouping that would yield a larger border effect the finding is robust over different econometric models treatment of the rest of the world available survey waves or levels of aggregation including contemporaneous controls such as network institutional or demographic variables and heckscher ohlin or linderterms lowers the estimate only slightly historical variables such as the incidence of slavery do not explain the effect away adding us states unaffected by the civil war we argue that the friction is not merely reflecting unmeasured north south differences finally the estimated border effect is larger for differentiated than for homogeneous goods stressing the potential role for cultural factors and trust

adaptive versus eductive learning theory and evidence adaptive and eductive learning are two widely used ways of modeling the process by which agents learn a rational expectation equilibrium ree in this paper we report an experiment where we exploit differences in the conditions under which adaptive and eductive learning converge to ree so as to investigate which approach provides the better description of the learning behavior of human subjects our results suggest that the path by which the system converges appears to be a mixture of both adaptive and eductive learning model predictions

placement service and offer arrival rates abstract determinants of job referrals by the austrian employment exchange are analyzed concentrating on three issues the validity of the poisson assumption allocation strategies of scarce vacancies and the stationarity of offer arrival rates over time

internal borders ethnic based market segmentation in malawi summary ethnic diversity is associated with poorer economic development but why i argue that market segmentation is one mechanism linking diversity to economic underdevelopment when ethnic groups are geographically segregated and trust is concentrated within groups markets will be tend to be segmented along ethnic lines i evaluate this argument using maize price data from seventy malawian markets over 14 years and combine it with census data on the spatial distribution of ethnic groups i find that maize price differences a key indicator of market segmentation are indeed larger for ethnically dissimilar markets even after taking sub national administrative borders geographic barriers and climatic differences into account these statistical findings are complemented by interview data from farmers and traders in three markets across malawi which highlight the centrality of trust in small scale maize trading as well as a preference for coethnic trading partners together these findings suggest that ethnic diversity and ethnoregional segregation in particular can have a negative impact on market integration an important driver of food security and long term economic development

three new empirical tests of the pollution haven hypothesis when environmental regulation is endogenous the validity of existing empirical tests of the pollution haven hypothesis phh is constantly under scrutiny due to two shortcomings first the issues of unobserved heterogeneity and measurement error in environmental regulation are typically ignored due to the lack of a credible traditional instrumental variable second while the recent literature has emphasized the importance of geographic spillovers in determining the location choice of foreign investment such spatial effects have yet to be adequately incorporated into empirical tests of the phh as a result the impact of environmental regulations on trade patterns and the location decisions of multinational enterprises remains unclear in this paper we circumvent the lack of a traditional instrument within a model incorporating geographic spillovers utilizing three novel identification strategies using state level panel data on inbound u s fdi relative abatement costs and other determinants of fdi we consistently find i evidence of environmental regulation being endogenous ii a negative impact of own environmental regulation on inbound fdi in pollution intensive sectors particularly when measured by employment and iii larger effects of environmental regulation once endogeneity is addressed neighboring environmental regulation is not found to be an important determinant of fdi

rationalizable strategic behavior the notion of equilibrium proposed by nash 19 has come to play a dominant role in economic applications of noncooperative games while analyses of nash equilibria have unquestionably contributed to our understanding of economic behavior it would be unreasonably optimistic to maintain that nash solved the problem of noncooperative strategic choice there is a small literature beginning with ellsberg 6 and a much larger oral tradition which argues that nash behavior is neither a necessary consequence of rationality nor a reasonable empirical proposition in this paper i take the view that although there may be various reasons why an agent might select a nash strategy the notion of an equilibrium has little intrinsic appeal within a strategic context when an agent reaches a decision in ignorance of the strategies adopted by other players rationality consists of making a choice which is justifiable by an internally consistent system of beliefs rather than one which is optimal post hoc this point of view is not original indeed most serious justifications of the nash hypothesis embrace such an approach arguing that agents will expect the game to yield a nash outcome and consequently will choose their equilibrium strategies nevertheless when we think in terms of maximizing utility subject to expectations rather than realizations it becomes clear that the nash hypothesis far from being a consequence of rationality arises from certain restrictions on agents expectations which may or may not be plausible depending upon the game being played we are then quite naturally led to ask are there any restrictions of individuals expectations and hence choices which are required by rationality alone rather than by subjective plausibility this paper is concerned with defining justifying characterizing and refining a criterion for rational strategic choice which i label rationalizability

intra national trade costs assaying regional frictions abstract the effects of intra regional inter regional and international frictions on the trade flows of canada s provinces are disentangled by gravity model techniques unexplained trade barriers utbs are the difference between inter provincial trade barriers inferred from pair fixed effects and from bilateral distance and contiguity the estimates reveal large intra national trade costs and utbs that vary significantly across canada s provinces decomposition of utbs into relative border effects and a systematic residual utb is based on a novel cobb douglas aggregator of intra provincial and pure inter provincial trade costs variation of both components across provinces is big

adaptive learning forecast based instrument rules and monetary policy abstract this paper argues that recently popular forecast based instrument rules for monetary policy may fail to stabilize economic fluctuations in a new keynesian model of output gap and inflation determination in which private agents face multi period decision problems but have non rational expectations and learn over time if the monetary authority adopts a forecast based instrument rule and responds to observed private forecasts then this class of policies frequently induce divergent learning dynamics a central bank that correctly understands private behavior can mitigate such instability by responding to the determinants of private forecasts this suggests gathering information on the determinants of expectations to be useful

trade in the triad how easy is the access to large markets in this paper we measure market access between the united states the eu and japan the triad using the effect of national borders on trade patterns we investigate overall and industry level trends of bilateral trade openness and provide explanations for those using proxies for bilateral observed protection tariffs and ntbs home bias of consumers product differentiation and levels of fdi the explanations related to actual protection home bias and substitutability of goods put together explain a large part of the border effect between blocs of the triad although they do not explain the whole of the border effect puzzle jel classification f12 f15 commerce dans la triade jusqu a quel point l acces aux grands marches est il facile cet article mesure le niveau d integration commerciale entre les pays de l ue le japon et les etats unis la triade en utilisant l effet des frontieres nationales sur le commerce international nous etudions le niveau et l evolution du degre d ouverture bilateral ainsi que les differentes explications possibles des effets frontiere estimes qui sont testees a l aide de variables capturant la protection tarifs et bnts le biais domestique des consommateurs le degre de differenciation des produits et les niveaux d ide bilateraux les explications liees a la protection au biais domestique et a la substituabilite entre produits considerees ensemble expliquent une bonne partie de l effet frontiere entre pays de la triade meme si elles n expliquent pas la totalite de l enigme

convergence and migration among provinces have regional disparities in canada changed over the past thirty years this paper assesses the robustness of earlier findings of convergence in the levels and growth rates of provincial per capita gdp and then estimates the extent to which interprovincial and international migration is being influenced by regional differences in incomes and employment excerpt

anticipated fiscal policy and adaptive learning abstract the impact of anticipated policy changes when agents form expectations using adaptive learning rather than rational expectations is considered agents are assumed to combine limited structural knowledge with a standard adaptive learning rule these issues are analyzed using two well known set ups an endowment economy and the ramsey model in our scenario there are important deviations from both rational expectations and purely adaptive learning the approach could be applied to other frameworks

tear down this wall on the persistence of borders in trade why do borders still matter for economic activity the reunification of germany in 1990 provides a unique natural experiment for examining the effect of political borders on trade both in the cross section and over time with the fall of the berlin wall and the rapid formation of a political and economic union strong and strictly enforced administrative barriers to trade between east germany and west germany were eliminated completely within a very short period of time the evolution of intra german trade flows after reunification then provides new insights for both the globalization and border effects literatures our estimation results show a remarkable persistence in intra german trade patterns along the former east west border political integration is not rapidly followed by economic integration instead we estimate that it takes at least one generation between 33 and 40 years or more to remove the impact of political borders on trade this finding strongly suggests that border effects are neither statistical artefacts nor mainly driven by administrative or red tape barriers to trade but arise from economic fundamentals

does eductive stability imply evolutionary stability this note presents a simple example of a model in which the unique rational expectations re steady state equilibrium is eductively stable in the sense of guesnerie 2002 but where evolutionary learning as introduced in brock and hommes 1997 does not necessarily converge to the re steady state price the example is a muthian cobweb model where producers have heterogeneous expectations and select forecasting strategies based upon recent realized profits by means of a simple three types example we show that a locally stable re fundamental steady state may co exists with a locally stable two cycle we also study the muthian model with a large number of different producer types and investigate conditions under which an evolutionary adaptive learning process based upon recent realized profits enforces global convergence to the stable re steady state and when persistent periodic price fluctuations can arise

does brain drain lead to institutional gain a country s endowment of human capital affects its institutions through various channels this raises the possibility that skilled emigration can leave its mark on a country s institutional development we explore the impact of emigrant human capital on home country s institutional quality using geographical and genetic distance based instrumental variables for emigration and a dynamic panel estimation method we find that human capital emigration helps the home country s political institutions but hurts economic institutions the conventional brain drain argument therefore needs to incorporate the institutional changes due to skilled labour emigration

do countries influence neighbouring pollution a spatial analysis of the ekc for co2 emissions abstract by considering spatial relationships this study aims to analyse to what extent per capita co2 emissions are determined by renewable energy consumption the share of the services sector in gdp energy intensity and real per capita income a panel data set composed of 173 countries over the 1990 2014 period is used to estimate an environmental kuznets curve ekc augmented by neighbouring per capita income and energy intensity both standard and spatial forms are estimated for seven different sets of countries to assess the robustness of the results finally several forecasts are performed to verify global sustainability and to provide some policy suggestions for the period 2015 2100 the empirical results indicate that i most areas support the standard ekc ii there seems to be an inverted u shaped relationship between neighbouring per capita income and national per capita emissions in europe asia and the world as a whole iii neighbouring energy intensity increases national per capita emissions and iv forecasts show that economic growth will accelerate climate change however a steady annual growth in renewable energy consumption and a steady decrease in energy intensity both close to 2 5 may guarantee environmental sustainability prior to 2100

eductive stability in real business cycle models we reexamine issues of coordination in the standard rbc model is the unique rational expectations equilibrium attainable by rational agents who contemplate the possibility of small deviations from equilibrium surprisingly we nd that coordination cannot be expected even with strong common knowledge assumptions rational agents anticipating small but persistent deviations are led to take actions that eventually contradict the common knowledge assumption this impossibility theorem for eductive learning is not fully overcome when adaptive learning is incorporated into the framework

dialect transaction cost and intra national trade evidence from china growing evidence emphasizes the important role of network effects on bilateral trade this paper proposes a new factor dialect difference which decreases social network across regions may incre

do state borders matter for u s intranational trade the role of history and internal migration empirical evidence of the impact of borders on international trade flows using the gravity equation approach abounds this paper examines the empirical relevance of state borders in u s interstate trade for various specifications of the gravity equation we find a large and economically significant subnational border effect for some specifications however two model specifications drastically reduce if not eliminate the border effect i dynamic panel specifications controlling for past levels of trade and ii models conditioning on internal migration les resultats empiriques de l analyse des impacts des frontieres sur les flux de commerce international en utilisant les modeles de gravite sont devenus monnaie courante ce texte examine l impact des frontieres entre etats a l aide de cette technique il s avere que les effets de frontieres infranationales sont grands et significatifs pour certaines specifications du modele cependant deux specifications du modele reduisent dramatiquement s ils n eliminent pas l effet de frontiere i des specifications qui prennent en compte les niveaux anterieurs de commerce et ii des specifications qui dependent de la migration interne

thick and thin borders in the european union how deep internal integration is within countries and how shallow between them the existence of large border effects is one of the main puzzles of international macroeconomics the seminal paper by mccallum found that trade between any two canadian provinces was on average 22 times greater than trade between any canadian province and any united state us although various authors have estimated internal and external border effects for the whole european union and some specific european countries none has done so in the manner that mccallum s seminal paper stymied by lack of data on region to region international trade flows this study uses a novel data set that captures intra and international truck shipments between spanish regions and regions in seven european countries during the period 2004 11 it computes internal and external border effects offering novel results for aggregate flows and the importing countries and estimates several specifications of the gravity equation so as to tackle such issues as the multilateral resistance term heteroskedasticity and zero flows and non linear relation between trade and distance the paper also adds a detailed analysis on the external border effect for each spanish exporting region and each of the seven european countries considered by means of this analysis we shed new light on the relative integration between regions of these seven countries and spanish exporting regions finally we conduct an extrapolation exercise computing the trade potentials that would be expected in a fully integrated europe and estimating how long full integration would take to achieve between each spanish exporting region and each european importing country to this regard two alternative scenarios are considered one using the growth rates of the spanish exports before the crisis 2001 08 and other considering the postcrisis growth rates 2011 13

estimating a simultaneous search model the primary goal of this article is to specify and estimate a structural simultaneous search model and then determine the empirical importance of simultaneous search the results indicate that new labor force entrants search simultaneously a secondary goal is to identify and estimate job offer arrival rates and wage offer rejection probabilities separately the results indicate that a significant portion of unemployment spells are caused by slow arrival rates but policies intended to speed arrival rates would increase the average length of unemployment spells

border effects and the availability of domestic products abroad trade between countries could fall short of trade within a country because 1 the volume of international trade is less than the volume of domestic trade for a given product the intensive margin or 2 some goods that are sold domestically are simply not exported the extensive margin my theoretical model illustrates that either of these two factors could explain a given aggregate border effect i examine the empirical relevance of this distinction by isolating the fraction of total domestic production attributable only to exporters finding that around one half of the border effect may be attributed to each explanation jel classification f1 les effets de frontieres et la disponibilite de produits domestiques a l etranger le commerce entre pays peut etre moindre que le commerce a l interieur d un pays parce que 1 le volume de commerce international est moindre que le volume du commerce interieur pour un produit donne la marge intensive ou 2 certains biens qui sont vendus a l interieur d un pays ne sont tout simplement pas exportes la marge extensive un modele theorique montre que l un et l autre de ces facteurs pourraient expliquer un certain effet de frontiere au niveau agrege on montre l importance empirique de cette distinction en isolant la fraction de la production interieure totale attribuable strictement aux exportateurs et il s avere qu a peu pres la moitie de l effet de frontiere est attribuable a chacune des deux explications

the impacts of exchange rate volatility on vegetable trade flows trade flows of commodities are generally affected by the principles of comparative advantage in a free trade however trade flows might be enhanced or distorted not only by various government interventions but also by exchange rate fluctuations among others this study applies a commodity specific gravity model to selected vegetable trade flows among organization for economic co operation and development oecd countries to determine the effects of exchange rate uncertainty on the trade flows using the data from 1996 to 2002 the results show that while the exchange rate uncertainty significantly reduces trade in the majority of commodity flows there is evidence that both short and long term volatility have positive effect on trade flows of specific commodities this study also tests the regional preferential trade agreements such as the north american free trade agreement nafta the asia pacific economic cooperation apec and the eu and their different effects on commodities

subnational home market bias in vietnam evidence from enterprise level data this paper contributes to the home market bias literature where administrative or political borders limit trade across borders home bias is well documented at the national and subnational level to sort out macro e g location characteristics and micro e g enterprise characteristics factors behind home bias we use small and medium sized enterprise sme data from vietnam using the fractional multinomial logit model we find that the proportion of sme sales outside of their home markets is positively associated with enterprise size age number of business association memberships and the distance of smes most important supplier in contrast the proportion of sme sales to neighbouring provinces is negatively associated with the share of sme production for final consumption besides enterprise level frictions market characteristics matter too the proportion of sme sales to customers in their home markets is negatively associated with home or neighbouring provinces governance quality while the proportion of sales to customers in neighbouring provinces is positively associated with these areas governance quality these suggest that good governance frees sme resources for use in selling to less familiar markets

the border effect in spain this paper analyses the border effect in spain using a unique dataset on intranational trade flows over the period 1995 98 the results indicate that after controlling for market size and distance spanish regions trade around 22 times more with the rest of spain than they do with oecd countries moreover the size of the spanish bias is lower in the case of the spanish regions exports than in the case of imports although the difference is not statistically significant in most cases finally the border effect is not uniform across spanish regions

indeterminacy and increasing returns abstract we investigate properties of the one sector growth model with increasing returns under two organizational structures capable of reconciling the existence of aggregate increasing returns with competitive behavior by firms the first involves input externalities the second involves monopolistic competition we show for parameters in close accord with recent literature on real business cycles that the model displays an indeterminate steady state that can be exploited to generate a model of business fluctuations driven by self fulfilling beliefs in our first class of models growth is generated by exogenous increases in factor productivity in the second class the marginal product of capital is large enough for endogenous growth journal of economic literature classification numbers e00 e3 o40

aggregation bias compositional change and the border effect borders affect the composition not only the level of interregional trade in disaggregated u s commodity flow data border effects vary substantially across commodities substantial border induced compositional change suggests the possibility that standard estimates suffer from aggregation bias arising from endogenous industry location patterns and the presence of zero observations in commodity level trade adjusting for these effects reduces the estimate of the aggregate border effect from 20 9 to 5 7 jel classification f14 f15 biais d agregation changement de composition et effet de frontieres les frontieres affectent la composition et pas seulement le volume de commerce inter regional une analyse des donnees desagregees des flux de commerce de biens des etats unis montre que l effet de frontieres varie substantiellement selon les biens le changement de composition du commerce engendre par les frontieres suggere la possibilite que les estimations usuelles souffrent d un biais d agregation resultant des patterns de localisation industrielle endogenes et de la presence d observations nulles dans le commerce de certains biens un ajustement pour tenir compte de ces effets suggere que les effets de frontieres passent de 20 9 a 5 7

on the size of home bias home bias in consumption refers to consumers strongly preferring domestic over foreign products however if the products were to be differentiated would there then be a taste for country of origin if this were the case what would be the market shares if consumers were to only value prices and characteristics and not the brand s nationality using a structural demand we account for home bias in the european car market and compute the counterfactual market shares in the absence of home bias we find that home biased preferences explain more than half of the market shares of domestic car manufacturers in their domestic markets limiting the role of trade frictions

the trade creating effects of business and social networks evidence from france using theory grounded estimations of trade flow equations this paper investigates the role that business and social networks play in shaping trade between french regions the bilateral intensity of networks is quantified using the financial structure and location of french firms and bilateral stocks of migrants compared to a situation without networks migrants are shown to double bilateral trade flows while networks of firms multiply trade flows by as much as four in some specifications finally taking network effects into account divides the estimation of the impact of transport costs and of the effect of administrative borders by around three

semiglobalization and international business strategy if markets were either completely isolated by or integrated across borders there would be little room for international business strategy to have content distinctive from mainstream strategy but a review of the economic evidence about the international integration of markets indicates that we fall in between these extremes into a state of incomplete cross border integration that i refer to as semiglobalization more specifically most measures of market integration have scaled new heights in the last few decades but still fall far short of economic theory s ideal of perfect integration the diagnosis of semiglobalization does more than just supply a relatively stable frame of reference for thinking about the environment of cross border operations it also calls attention to the critical role of location specificity in the prospects of distinctive content for international business strategy relative to mainstream business and corporate strategy in addition it flags factors products subject to location specificity as being salient from the perspective of international business finally it highlights the scope for strategies that strive to capitalize on the large residual barriers to cross border integration as well as those that simply try to cope with them

long term unemployment and the shifting u v curve a multi country study one of the most worrying aspects of the rise in unemployment in the oecd countries since 1980 has been the even more rapid rise in long term unemployment in this paper we investigate this phenomenon in four countries the u k west germany the netherlands and the u s a fig 1 shows recent trends in the ratio of long term to total unemployment for these four countries where long term unemployment is defined as unemployment for more than twelve months in the u k the ratio was only 0 1 in the 1960s and since then there have been three periods when this ratio was in an approximate steady state in 1969 72 around 0 16 0 23 from 1977 79 and 0 4 from 1984 to the present for west germany similar trends have been observed especially since 1975 but with a consistently lower ratio for the netherlands males only the pattern is again similar but with consistently higher ratios which are possibly due to excluding females for the u s a the ratio has been very much lower than the three european countries nevertheless the u s a has in common with the others experienced the same recent dramatic rise in budd levine and smith 1985 a model is presented to explain the duration profile of unemployment in this model a key parameter is the outflow rate from unemployment which can be thought of as the average probability of leaving the register flow data for the u k indicate that this average probability of finding a job within a given quarter is considerably less for the long term than for the short term unemployed the model shows that this differential is crucial for explaining the recent sharp rise in the ratio of long term to total unemployment we believe that this fall in probability is associated with both a reduction

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

does trade creation by social and business networks hold in services recent literature on the border effect has shown that the intensity of trade in goods is positively correlated with the migration stocks between any pair of countries regions the number of references for business networks is more limited but they are also related with a reduction on information costs in this article we investigate whether such a relation holds also for spanish domestic trade flows in consumer services to this end we use a gravity model rooted in the dixit stiglitz krugman theoretical framework and a unique data set on interregional trade flows for some of the main tourism service sectors namely accommodations and restaurants our industry specific analysis finds a large positive effect for restaurants but a more limited effect for accommodations forces driving the demand in each sector explain this result and suggest the idea that although social networks can act as a substitute of firms in some sectors at the same time they can enhance trade flows in other sectors we perform the

competitiveness and interregional as well as international trade the case of catalonia abstract recent years have seen a surge of interest among industrial organization economists in using data on international trade flows as windows into competitiveness for countries that are at least mid sized e g spain interregional trade tends to be as large as or significantly larger than international trade the case of catalonia a spanish region illustrates how ignoring interregional flows can lead to erroneous inferences about a region s external competitiveness accounting for catalonia s interregional as well as international flows shifts what is generally assessed to be a chronic trade deficit in goods into a surplus and changes diagnoses of which catalan sectors generate external surpluses and who its key trading partners are we also use a gravity model approach to estimate international border effects for catalonia

the environmental consequences of trade evidence from subnational trade flows abstract the debate over the environmental consequences of free trade is not only quite heated but also entails significant policy ramifications recently cross sectional analysis at the country level has made use of exogenous determinants of trade to identify the causal effect of trade on the environment finding moderate evidence of a beneficial impact of expanded trade on environmental quality given the stakes involved we revisit this finding using subnational data on trade flows across us states and several measures of pollution not only does the analysis shed further light on the debate at the international level but also addresses a heretofore unexamined question does greater inter regional commerce at the subnational level harm the environment our findings are striking providing further evidence against a negative environmental impact of trade for the majority of measures analyzed however several sources of heterogeneity arise that are noteworthy

the effect of broadband on european union trade a regional spatial approach the positive effect of information and communication technologies ict on trade between countries has been widely studied in the literature but how ict impacts regional trade is limited due to the lack of regional trade data in this paper we test whether broadband as a proxy for ict increases bilateral trade at the regional level in europe we use a novel regional trade database of european union regions and estimate an origin destination flow gravity model for 2007 and 2010 accounting for spatial dependence among trade flows our results indicate that broadband is positive and significant in explaining trade patterns between european regions during both time periods

intra national home bias some explanations wolf demonstrates that trade within the united states appears substantially impeded by state borders we revisit this finding with improved data we show that much intranational home bias can be explained by wholesaling activity shipments by wholesalers are much more localized within states than shipments from manufacturing establishments controlling for relative prices and the use of actual rather than imputed shipment distances also reduces home bias estimates

explaining the border effect the role of exchange rate variability shipping costs and geography this paper exploits a three dimensional panel data set of prices on 27 traded goods over 88 quarters across 96 cities in the us and japan we show that a simple average of good level real exchange rates tracks the nominal exchange rate well suggesting strong evidence of sticky prices focusing on dispersion in prices between city pairs we find that crossing the us japan border is equivalent to adding as much as 43 000 trillion miles to the cross country volatility of relative prices we turn next to economic explanations for this so called border effect and to its dynamics distance unit shipping costs and exchange rate variability collectively explain a substantial portion of the observed international market segmentation relative wage variability on the other hand has little independent impact on segmentation 2001 elsevier science b v all rights reserved

canadian provinces in world trade engagement and detachment the authors test whether the findings of john mccallum 1995 and john f helliwell 1996 that the canada u s border substantially decreases trade are evident in canada s trade with the rest of the world they also test whether there are differences across provinces and between each province s exports and imports in this border effect the authors find canada s border with the united states is neither larger nor smaller than the border with the rest of the world and that the border s size varies dramatically across provinces provinces exhibit distinct borders for exports and imports suggesting british columbia is an export platform while ontario and quebec are import platforms

intra national versus international trade in the european union why do national borders matter the first objective of this paper is to estimate border effects among european union countries in this context the specification of the gravity equation together with the choice of the distance measure are shown to be crucial for assessing the size of the border effect the second objective is to evaluate the determinants of the cross commodity variation in national border effects contrary to previous findings reported in the literature we show that trade barriers do provide an explanation in particular technical barriers to trade together with product specific information costs increase border effects whereas non tariff barriers are not significant our results further suggest that these barriers are not the only cause since the spatial clustering of firms is also found to matter

product complexity quality of institutions and the protrade effect of immigrants the paper assesses the trade creating impact of foreign born residents on the international imports and exports of the french regions where they are settled the protrade effect of immigrants is investigated along two intertwined dimensions the complexity of traded goods and the quality of institutions in partner countries the trade enhancing impact of immigrants is on average more salient when they come from a country with weak institutions however this positive impact is especially large on the imports of simple products when we turn to complex goods for which the information channel conveyed by immigrants is the most valuable immigration enhances imports regardless of the quality of institutions in the partner country regarding exports immigrants substitute for weak institutions on both simple and complex goods

expectations and the stability problem for optimal monetary policies eine auf den fundamentaldaten beruhende regelbindung der geldpolitik ohne selbstverpflichtung die bei vollkommen rationalen erwartungen der privaten akteure optimal ware ist instabil wenn diese akteure de facto den ublichen regeln des adaptiven lernens folgen dieses problem lasst sich dadurch beheben dass die erwartungen privater akteure berucksichtigt und in geeigneter weise in die optimale geldpolitik einbezogen werden diese eindeutige schlusfolgerung gilt auch dann wenn sich der geldpolitische entscheidungstrager und die privaten akteure in einem simultanen lernprozess befinden unsere ergebnisse zeigen wie wichtig es ist die geldpolitik angemessen zu gestalten und dabei nicht nur die fundamentaldaten sondern auch direkt die beobachteten erwartungen privater haushalte und unternehmen zu berucksichtigen

estimating a structural search model the transition from school to work this paper presents a finite horizon search model that is econometrically implemented using all of the restrictions impli ed by the theory following a sample of male high school graduates fr om the youth cohort of the national longitudinal surveys from graduat ion to employment search parameters are estimated reservation wages and offer probabilities are estimated to be quite low simulations a re performed of the impact of changing the parameters on the expected duration of unemployment copyright 1987 by the econometric society

north south and distance in the gravity model abstract it is generally assumed that distance in the gravity model strictly reflects frictions impeding bilateral trade however distances north south could also reflect differences in factor endowment that provide opportunities for profitable trade this paper investigates the hypothesis that if we control for distance in the ordinary sense differences north south promote international trade the hypothesis receives ample support moreover the significance of differences north south survives a battery of robustness tests concerning period distinctions between differences in latitude north north north south and south south and controls for other measures of differences in factor endowment such as differences in per capita output and differences in average temperature rainfall and seasonal range in temperature the impact of differences north south on bilateral trade has also been falling this decline in turn might be partly responsible for the weakening of the influence of distance that has been occurring since world war ii this last hypothesis receives confirmation as well finally the paper examines the impact of internal distance and remoteness on trade since both variables are country specific this is done by studying their impact on the country fixed effects themselves in the earlier estimates internal distance turns out to have a far greater impact than remoteness by an order of 10

rationalizable strategic behavior and the problem of perfection this paper explores the fundamental problem of what can be inferred about the outcome of a noncooperative game from the rationality of the players and from the information they possess the answer is summarized in a solution concept called rationalizability strategy profiles that are rationalizable are not always nash equilibria conversely the information in an extensive form game often allows certain unreasonable nash equilibria to be excluded from the set of rationalizable profiles a stronger form of rationalizability is appropriate if players are known to be not merely rational but also cautious what constitutes rational behavior in a noncooperative strategic situation this paper explores the issue in the context of a wide class of finite noncooperative games in extensive form the traditional answer relies heavily upon the idea of nash equilibrium nash 17 the position developed here however is that as a criterion for judging a profile of strategies to be reasonable choices for players in a game the nash equilibrium property is neither necessary nor sufficient some nash equilibria are intuitively unreasonable and not all reasonable strategy profiles are nash equilibria the fact that a nash equilibrium can be intuitively unattractive is well known the equilibrium may be imperfect introduced into the literature by selten 20 the idea of imperfect equilibria has prompted game theorists to search for a narrower definition of equilibrium while this research some of which will be discussed here has been extremely instructive it remains inconclusive theorists often agree about what should happen in particular games but to capture this intuition in a general solution concept has proved to be very difficult if this paper is successful it should make some progress in that direction the other side of the coin has received less scrutiny can all non nash profiles really be excluded on logical grounds i believe not the standard justifications for considering only nash profiles are circular in nature or make gratuitous assumptions about players decision criteria or beliefs the following discussion of these points is extremely brief due to space constraints more detailed arguments may be found in pearce 18

earnings unemployment and the allocation of time over time since an individual s labour market history can be described by a markov chain in state space it is possible to calculate the steady states it is natural to interpret the steady state proportion in unemployment for a group of identical workers as the natural rate of unemployment for this group i e it is the expected proportion that would be employed if the environment were to remain constant it is shown how the natural rate of unemployment is different for different groups the model is estimated using data from a large u s income maintenance experiment the predictions of the model with some exceptions bear up well to confrontation by data the empirical findings also accord well with existing evidence on cross section studies of labour supply we find that labour force participation rates implied by the estimated models are positively related to earnings for all age sex and race groups as expected we demonstrate that the elasticities of the unemployment rates for all groups with respect to expected wage rates are negative and large in absolute value in the case of adults while the role of the wage in allocation of time is not novel the existing neoclassical labour literature uses static labour supply models to interpret participation rate studies

measuring internal trade distances a new method applied to estimate provincial border effects in canada in this paper we suggest an improved methodology for comparing the intensity of trade across and within national and provincial boundaries earlier efforts to assess border effects for provinces or for countries without internal trade statistics made fairly arbitrary assumptions about average distances for internal trade flows we improve on earlier efforts by taking more complete account of the distribution of population within each province or country internal distance is estimated as a population weighted average of intra city and intercity distances as well as distances to and within rural areas we find higher estimates of internal distances and hence border effects than found in previous studies

true and spurious duration dependence the identifiability of the proportional hazard model lancaster and nickell 1980 have argued that in the proportional hazard model the effects of time dependence true duration dependence and unobserved sample heterogeneity spurious duration dependence cannot be distinguished we show that both effects can be distinguished if the model allows for observed explanatory variables in the hazard we also discuss the application of our result to practical situations

freight transportation costs and the thickening of the us mexico border border regulatory requirements and administrative practices changed subsequent to the september 11 2001 9 11 terrorist attacks in the united states research in this study examines the manners in which transportation cost data for merchandise imports from mexico behaved before and after 2001 evidence is obtained that confirms results earlier tabulated for imports from canada empirical results further indicate that beyond freight cost changes growth in the value of imports from mexico was disrupted by events associated with the aftermath of 9 11

trade in polarized america the border effect between red states and blue states political and cultural polarization in the united states is widely discussed but does it relate to any economic disconnection among states we estimate the border effect between red and blue states using the gravity equation with a nonlinear generalized method of moments estimator to simultaneously overcome the problems associated with endogeneity cross state price differences and zero trade flow the border effect is robustly confirmed for the 2000s while not so robustly detected for the 1990s notably in 2007 the border reduces trade between red and blue states to approximately 75 of the trade within each set of states this estimated border effect is much smaller than the united states canada national border effect estimated by anderson and van wincoop 2003 and by feenstra 2002 yet is comparable to the border effect that nitsch and wolf 2009 find for the former west and east germanies approximately loyears after reunification while the border effect in germany after reunification is decreasing the border effect between the red and blue states is emerging we also find the border effect is more significant for consumption rather than intermediate goods the border effect is an important indicator for a potential dismantling of the economic connectivity in the united states jel d72 f10 fi5 r1 i introduction recent u s presidential elections have raised concern about polarization in u s politics and culture namely the united states is divided into two nations the red states we call it the red nation preserving the term state for an individual state and the blue states the blue nation in the red nation culturally and religiously conservative republicans are dominant while in the blue nation liberal democrats are the majority so far the focus of the discussion is the extent of the polarization abramowitz and saunders 2008 fiorina et al 2008 its determinants gelman et al 2010 and its implications on federal policy making glaeser et al 2005 mellow and trubowitz 2005 economic implications have not been largely discussed however the polarization may suggest economic divisions because it is a sign of geographic sorting of people and their preferences this article provides evidence that economic disconnectivity between the red and blue nations emerged in the 2000s we explore 1 whether there is a border effect on interstate trade 2 if the effect exists how large it is and 3 what types of goods are most affected in the context of existing literature and recent u s political and cultural events we then provide possible explanations for our findings this study uses a gravity equation of international trade to examine the effect of the fictional national border between the red and blue nations the methodology was originally applied by mccallum 1995 to estimate the degree of impact of the national border on trade between the united states and canada he finds that intercountry trade is less than 5 of the intracountry trade of canada controlling for other factors following mccallum s 1995 work several studies have proposed methodological improvements we apply an updated estimation method nonlinear generalized method of moments gmm estimator of a gravity equation to examine the border effect between the red and blue nations our analysis finds a statistically and economically significant border effect between the red and blue nations especially in years 2002 and 2007 we examine the border effect in 1993 1997 2002 and 2007 the years in which trade flow data are available from the federal commodity flow survey cfs the border effect is not robustly found in 1993 and 1997 however it is robustly detected in 2002 and 2007 even with additional controls or alternative specifications at the industry level analysis we find that the border effect is significant for consumption goods such as food tobacco and printed products but not for intermediate products i

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances