Trade Prices and the Global Trade Collapse of 2008–09

The paper documents the behavior of trade prices during the Great Trade Collapse of 2008–09 using transaction-level data from the U.S. Bureau of Labor Statistics. First, the paper finds that differentiated manufactures exhibited marked stability in their trade prices during the large decline in their trade volumes. Prices of nondifferentiated manufactures, by contrast, declined sharply. Second, while the trade collapse was much steeper among differentiated durable manufacturers than among nondurables, prices in both categories barely changed. Third, the frequency and magnitude of price adjustments at the product level changed with the onset of the crisis, consistent with a state-dependent view of price adjustment. The quantitative magnitudes of the changes, however, were not pronounced enough to affect aggregate prices. The paper's findings present a challenge for theories of the trade collapse based on cost shocks specific to traded goods that work through prices.