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Accounting for Trade Patterns

February 2024

Working Paper Number:

CES-24-07

Abstract

We develop a quantitative framework for decomposing trade patterns. We derive price indexes that determine comparative advantage and the aggregate cost of living. If firms and products are imperfect substitutes, we show that these price indexes depend on variety, average appeal (including quality), and the dispersion of appeal-adjusted prices. We show that they are only weakly related to standard empirical measures of average prices. We find that 40 percent of the cross-section variation in comparative advantage, and 90 percent of the time-series variation, is accounted for by variety and average appeal, with less than 10 percent attributed to average prices.

Document Tags and Keywords

Keywords Keywords are automatically generated using KeyBERT, a powerful and innovative keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant keywords.

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:
demand, market, macroeconomic, sale, cost, substitute, product, commodity, price, prices products, average, good, competitiveness, pricing, competitor, advantage

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:
Bureau of Labor Statistics, National Science Foundation, Center for Economic Studies, Ordinary Least Squares, National Bureau of Economic Research, Generalized Method of Moments, North American Industry Classification System, Heckscher-Ohlin, Harmonized System, UC Berkeley, Census Bureau Disclosure Review Board, Federal Statistical Research Data Center

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