Do trade costs explain macroeconomic puzzles?

Research published by the Reserve Bank of Australia finds some evidence that trade costs do, at least in part, explain three monetary policy puzzles; the purchasing power parity real exchange rate persistence puzzle, the Feldstein-Horioka saving-investment puzzle and the international consumption correlation puzzle.

Data, the paper said, shows some evidence to support trade costs' role in explaining the puzzles, which Maurice Obstfeld and Kenneth Rogoff originally proposed in 2001. However, the

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