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Novy, Dennis and Taylor, Alan M. (2020) Trade and uncertainty. The Review of Economics and Statistics, 102 (4). pp. 749-765. doi:10.1162/rest_a_00885 ISSN 0034-6535.
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Official URL: https://doi.org/10.1162/rest_a_00885
Abstract
We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the idea of uncertainty shocks with international trade. In an open economy framework, firms order inputs from home and foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of inputs. In response to an uncertainty shock firms optimally adjust their inventory by cutting orders of foreign inputs disproportionately strongly. In the aggregate, this leads to a bigger contraction in international trade flows than in domestic activity, a magnification effect. We confront the model with newly-compiled U.S. import data and industrial production data going back to 1962, and also with disaggregated data at the industry level back to 1989. Our results suggest a tight link between uncertainty and fluctuations in international trade.
Item Type: | Journal Article | |||||||||||||||
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Subjects: | H Social Sciences > HF Commerce | |||||||||||||||
Divisions: | Faculty of Social Sciences > Economics | |||||||||||||||
Library of Congress Subject Headings (LCSH): | International trade, Imports -- United States, Uncertainty | |||||||||||||||
Journal or Publication Title: | The Review of Economics and Statistics | |||||||||||||||
Publisher: | MIT Press | |||||||||||||||
ISSN: | 0034-6535 | |||||||||||||||
Official Date: | 19 October 2020 | |||||||||||||||
Dates: |
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Volume: | 102 | |||||||||||||||
Number: | 4 | |||||||||||||||
Number of Pages: | 50 | |||||||||||||||
Page Range: | pp. 749-765 | |||||||||||||||
DOI: | 10.1162/rest_a_00885 | |||||||||||||||
Status: | Peer Reviewed | |||||||||||||||
Publication Status: | Published | |||||||||||||||
Reuse Statement (publisher, data, author rights): | This is the author’s final version. The article has been accepted for publication in The Review of Economics and Statistics © 2019 The MIT Press | |||||||||||||||
Access rights to Published version: | Open Access (Creative Commons) | |||||||||||||||
Date of first compliant deposit: | 6 June 2019 | |||||||||||||||
Date of first compliant Open Access: | 11 June 2019 | |||||||||||||||
RIOXX Funder/Project Grant: |
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