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Working Capital, Trade and Macro Fluctuations

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  • Se-Jik Kim

    (Seoul National University)

  • Hyun Song Shin

    (Princeton University)

Abstract

In addressing the precipitous drop in trade volumes in the recent crisis, the real and financial explanations have sometimes been juxtaposed as competing explanations. However, they can be reconciled by appeal to the time dimension of production and the working capital demands associated with offshoring and vertical specialization of production. We explore a model of manufacturing production chains with offshoring where firms choose their time profile of production and where inventories, accounts receivable, and productivity are procyclical and track financial conditions.

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Bibliographic Info

Paper provided by Princeton University, Department of Economics, Center for Economic Policy Studies. in its series Working Papers with number 1465.

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Date of creation: Jun 2013
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Handle: RePEc:pri:cepsud:235shin

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Keywords: offshoring; manufacturing; production;

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  1. Neumeyer, Pablo Andrés & Perri, Fabrizio, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4482, C.E.P.R. Discussion Papers.
  2. Virgiliu Midrigan & Joseph Kaboski & George Alessandria, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," 2010 Meeting Papers, Society for Economic Dynamics 107, Society for Economic Dynamics.
  3. Shin, Hyun Song, 2010. "Risk and Liquidity," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199546367, October.
  4. Blinder, Alan S, 1986. "Can the Production Smoothing Model of Inventory Behavior Be Saved?," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(3), pages 431-53, August.
  5. Felipe Schwartzman, 2010. "Time to produce and emerging market crises," Working Paper, Federal Reserve Bank of Richmond 10-15, Federal Reserve Bank of Richmond.
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