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Product durability and trade volatility
One of the main causes behind the trade collapse of 2008?09 was a significant fall in the demand for durable goods. This paper develops a small country, overlapping generations model of international trade in which goods durability gives rise to a more than proportional fall in trade volumes, as observed in 2008?09. The model has three goods?two durable, traded goods and one nondurable, nontraded good and two factors of production. The durability of goods affects consumers' lifetime wealth and their optimal consumption bundle across goods and time periods. A uniform productivity shock reduces ...