Fourth Quarter 1999
Federal Reserve Bank of Dallas

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The Nature and Significance of Intra-industry Trade
Roy J. Ruffin

In this article, Roy Ruffin gives an overview of intra-industry trade for the generalist. Intra-industry trade represents international trade within industries rather than between industries. Such trade is more beneficial than inter-industry trade because it stimulates innovation and exploits economies of scale. Moreover, since productive factors do not switch from one industry to another, but only within industries, intra-industry trade is less disruptive than inter-industry trade.

Is There a Persistence Problem? Part 1: Maybe
Evan F. Koenig

Empirical studies suggest that monetary policy shocks can have a sustained impact on aggregate output. How is it possible for nominal shocks to have persistent real effects? One popular explanation centers on overlapping price contracts. However, recent theoretical work has cast doubt on the price-contract story. It turns out to be extremely difficult to obtain long-lasting output effects from policy shocks in a world with staggered price setting, except under unrealistic assumptions about household tastes.

Evan Koenig uses a simple model economy to illustrate why the popular explanation of the role of staggered price setting in generating persistence typically fails and why there is renewed interest in labor-market imperfections as a possible source of persistence. A follow-up article in a subsequent issue will examine the potential contribution of labor-market imperfections in more detail.