Lecture 5 - Isabelle MEJEAN's home page

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Hypotheses Betts & Devereux (1996) Campa & Goldberg (2006) Two country model with wage stickiness (wages are sticky over the relevant pricing horizon) Imported inputs in the production of tradable and nontradable goods ⇒ Producing costs sensitive to exchange rates Distribution costs in terms of nontradables ⇒ Failure of purchasing power parity due to the presence of local transaction and distribution costs. Isabelle Méjean Lecture 5
Betts & Devereux (1996) Campa & Goldberg (2006) Hypotheses (2): Consumption structure C.E.S. utility functions over nontraded and traded goods consumption: C = [α 1 Φ C Φ−1 Φ T + (1 − α) 1 Φ−1 ] Φ Φ−1 Φ C Φ N Home (h) and foreign (f) tradable goods consumption are imperfect substitutes: [ 1 Φ Φ C T = α T T C T −1 Φ T TH + (1 − α T ) 1 Φ T −1 ] Φ T Φ T −1 Φ Φ T C T TF Both sectors produce a continuum of varieties with similar elasticities of substitution: [∫ 1 ] θ C N = c(n) θ−1 θ−1 θ dn 0 [∫ 1 C TH = 0 ] θ c(h) θ−1 θ−1 θ dh Isabelle Méjean Lecture 5
Page 1 and 2: Betts & Devereux (1996) Campa & Gol
Page 3 and 4: Motivation Betts & Devereux (1996)
Page 5 and 6: Hypotheses Betts & Devereux (1996)
Page 19: Betts & Devereux (1996) Campa & Gol

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