Terms of trade shocks and endogenous search unemployment: A two-sector model with non-traded goods

Xinpeng Xu, Yu Sheng

    Research output: Contribution to journalArticle

    Abstract

    We develop a simple and tractable two-sector search model featuring a non-traded sector and endogenous search unemployment to examine the impact of terms of trade shocks on unemployment. We show that changes in terms of trade will not only lead to employment reallocation across sectors, as in the traditional trade models, but, more importantly, impact upon search unemployment within each sector. Specifically, we show that an improvement (deterioration) of terms of trade reduces (increases) unemployment rates in both traded and non-traded sectors.
    Original languageEnglish
    Pages (from-to)201-215
    JournalPacific Economic Review
    Volume19
    Issue number2
    DOIs
    Publication statusPublished - 2014

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