Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/18993 
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper No. 1529
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In this paper we test the well-known hypothesis of Obstfeld and Rogoff (2000) that trade costs are the key to explaining the so-called Feldstein-Horioka puzzle. Using a gravity framework in an intertemporal context, we provide strong support for the hypothesis and we reconcile our results with the so-called home bias puzzle. Interestingly, this requires a fundamental revision of Obstfeld and Rogoff's argument. A further novelty of our work is in tying bilateral trade behavior to desired aggregate trade balances and desired intertemporal trade.
Subjects: 
Feldstein-Horioka puzzle
trade costs
gravity model
home bias puzzle
current account
trade balance
JEL: 
F32
F10
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.