New Keynesian Trade: Understanding the Employment and Welfare Effects of Trade Shocks

06.12.2021 16:00 – 17:15

GENEVA TRADE AND DEVELOPMENT WORKSHOP / ABSTRACT

(Joint with Mauricio Ulate Jose P. Vasquez)

Abstract:

This paper presents a dynamic quantitative trade and migration model that incorporates downward nominal wage rigidities and shows how this framework can generate changes in unemployment and nonemployment that match those uncovered by the empirical literature studying the “China shock.” We find that the China shock leads to average welfare increases in most U.S. states, including many that experience unemployment during the transition. However, nominal rigidities reduce the overall U.S. gains by roughly one third. In addition, there are seven states that experience welfare losses in the presence of downward nominal wage rigidity that would have experienced welfare gains without it.

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Bâtiment: IHEID

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