Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/100381
Authors: 
Novy, Dennis
Taylor, Alan
Year of Publication: 
2014
Series/Report no.: 
Beiträge zur Jahrestagung des Vereins für Socialpolitik 2014: Evidenzbasierte Wirtschaftspolitik - Session: Financial Crisis and Foreign Trade C14-V2
Abstract: 
We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. In response to an uncertainty shock firms optimally adjust their inventory by cutting orders of foreign intermediates disproportionately strongly. In the aggregate, this leads to a bigger contraction in international trade flows than in domestic activity. We confront the model with newly-compiled U.S. import data and industrial production data going back to 1962, and also with disaggregated data back to 1989. Our results suggest a tight link between uncertainty and fluctuations in international trade.
JEL: 
F10
E30
F40
Document Type: 
Conference Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.