Trade and Uncertainty
By D. Novy, Alan M. Taylor. Review of Economics and Statistics, 2014
173 citations recorded by the source corpus.
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. Firms order inputs from home and foreign suppliers. In response to an uncertainty shock firms disproportionately cut orders of foreign inputs due to higher fixed costs. 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 US import and industrial production data. Our results help to explain the Great Trade Collapse of 2008–2009.
Subfields: Economics and Econometrics, Finance
View Paper: https://www.semanticscholar.org/paper/722271d0129f38ddbb436949654a35d78b4dd26b
How researchers see this paper
The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.
In Economics and Econometrics
- Benjamin Born
- Gernot J. Müller
- Petr Sedlácek
- Kefeng Xiao
- Qing Wang
- Zhoulai Lu
- Ligang Song
- M. Schularick
In Finance
- Gernot J. Müller
- Petr Sedlácek
- Benjamin Born
- M. Schularick
- C. Borio
- Hélène Rey
- Peter J. Brockwell
- L. Svensson
Citations in the corpus
- The COVID‐19 Pandemic and Its Impact on the Global Economy: What Does It Take to Turn Crisis into Opportunity? (2020, background): “In times of heightened economic uncertainty, firms cut foreign orders more strongly than domestic ones since inventory costs are larger for foreign inputs, leading to trade contraction (Novy and Taylor, 2014), and trade policy uncertainty limits firms’ entry into export markets due to sunk export co”
- The Costs of Economic Nationalism: Evidence from the Brexit Experiment* (2019, background): “Our paper relates to work on the impact of (trade policy) uncertainty on international trade (see e.g. Novy and Taylor, 2014; Handley and Limão, 2017, 2015; Limão and Maggi, 2015).”
- Does Economic Policy Uncertainty Affect CO2 Emissions? Empirical Evidence from the United States (2020, background): “Indeed, researchers have indicated that uncertainty decreases investments [8–11] and leads to a decline in international trade [12].”