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The Great Trade Collapse: An Evaluation Of Competing Stories

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  • Yilmazkuday, Hakan

Abstract

The reduction in international trade has been more than the reduction in economic activity during the 2008 financial crisis, against the one-to-one relationship between them implied by standard trade models. This so-called the Great Trade Collapse (GTC) has been investigated extensively in the literature resulting in alternative competing stories as potential explanations. By introducing and estimating a dynamic stochastic general equilibrium model using 18 quarterly series from the USA, including those that represent the competing stories, this paper evaluates the contribution of each story to GTC. The results show that retail inventories have contributed the most to the collapse and the corresponding recovery, followed by protectionist policies, intermediate-input trade, and trade finance. Productivity and demand shocks have played negligible roles.

Suggested Citation

  • Yilmazkuday, Hakan, 2021. "The Great Trade Collapse: An Evaluation Of Competing Stories," Macroeconomic Dynamics, Cambridge University Press, vol. 25(4), pages 1053-1089, June.
    • Handle: RePEc:cup:macdyn:v:25:y:2021:i:4:p:1053-1089_8
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    Cited by:

    1. Jongrim Ha & M. Ayhan Kose & Franziska Ohnsorge & Hakan Yilmazkuday, 2025. "What Explains Global Inflation," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 73(2), pages 522-555, June.
    2. Huang, Zhigang & Li, Jie, 2023. "Incomplete Exchange Rate Pass-through and International Monetary Policy Cooperation," Macroeconomic Dynamics, Cambridge University Press, vol. 27(2), pages 399-431, March.
    3. Omer Bayar & Mohammed Mohsin, 2025. "Exchange rate-based inflation stabilization: Theory and practical applications," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 49(2), pages 511-535, June.

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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