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Cyclical Fluctuations in International Trade Volumes

Author

Listed:
  • Michael Waugh

    (New York University)

  • Fernando Leibovici

    (New York University)

Abstract

In postwar time series data, the elasticity of cyclical fluctuations in import volumes to measures of economic activity is well over two. A large class of models of international trade predict this elasticity to be one. This presents a challenge to these models with otherwise well regarded cross-sectional implications for trade. In this paper, we document these facts and explore simple dynamic modifications of existing models and their ability to quantitatively replicate the high elasticity of imports with respect to domestic absorbtion measured in U.S. time series data. In particular, we focus on the joint effect of time-to-ship and trade financing frictions in their ability to resolve this puzzle.

Suggested Citation

  • Michael Waugh & Fernando Leibovici, 2010. "Cyclical Fluctuations in International Trade Volumes," 2010 Meeting Papers 1095, Society for Economic Dynamics.
  • Handle: RePEc:red:sed010:1095
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    References listed on IDEAS

    as
    1. Simonovska, Ina & Waugh, Michael E., 2014. "The elasticity of trade: Estimates and evidence," Journal of International Economics, Elsevier, vol. 92(1), pages 34-50.
    2. Andrei A. Levchenko & Logan Lewis & Linda L. Tesar, 2009. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," Working Papers 592, Research Seminar in International Economics, University of Michigan.
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    9. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358-392.
    10. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.
    11. Hummels, David L. & Schaur, Georg, 2010. "Hedging price volatility using fast transport," Journal of International Economics, Elsevier, vol. 82(1), pages 15-25, September.
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    13. Boileau, Martin, 1999. "Trade in capital goods and the volatility of net exports and the terms of trade," Journal of International Economics, Elsevier, vol. 48(2), pages 347-365, August.
    14. Andrei A. Levchenko & Logan T. Lewis & Linda L. Tesar, 2010. "The Role of Financial Factors in the Trade Collapse: A Skeptic's View," Working Papers 616, Research Seminar in International Economics, University of Michigan.
    15. Jacks, David S. & Meissner, Christopher M. & Novy, Dennis, 2010. "Trade costs in the first wave of globalization," Explorations in Economic History, Elsevier, vol. 47(2), pages 127-141, April.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. International Trade and Intertemporal Substitution
      by Christian Zimmermann in NEP-DGE blog on 2014-12-22 21:24:34

    Citations

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    Cited by:

    1. Ana Maria Santacreu & Fernando Leibovici, 2016. "International Trade Fluctuations and Monetary Policy," 2016 Meeting Papers 367, Society for Economic Dynamics.
    2. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.
    3. Logan T. Lewis, 2014. "Menu Costs, Trade Flows, and Exchange Rate Volatility," International Finance Discussion Papers 1102, Board of Governors of the Federal Reserve System (U.S.), revised 16 Apr 2014.
    4. Nicolas Berman & José de Sousa & Philippe Martin & Thierry Mayer, 2013. "Time to Ship during Financial Crises," NBER International Seminar on Macroeconomics, University of Chicago Press, vol. 9(1), pages 225-260.
    5. Logan Lewis, 2013. "Menu Costs, Trade Flows, and Exchange Rate Volatility," 2013 Meeting Papers 313, Society for Economic Dynamics.
    6. Blonigen, Bruce A. & Piger, Jeremy & Sly, Nicholas, 2014. "Comovement in GDP trends and cycles among trading partners," Journal of International Economics, Elsevier, vol. 94(2), pages 239-247.
    7. Daniel Paravisini & Veronica Rappoport & Philipp Schnabl & Daniel Wolfenzon, 2015. "Dissecting the Effect of Credit Supply on Trade: Evidence from Matched Credit-Export Data," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 333-359.
    8. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, May.
    9. Sebastian Weber & Anna Ivanova, 2011. "Do Fiscal Spillovers Matter?," IMF Working Papers 11/211, International Monetary Fund.
    10. Horag Choi & George Alessandria, 2015. "The Dynamics of the Trade Balance and the Real Exchange Rate: The J Curve and Trade Costs?," 2015 Meeting Papers 1413, Society for Economic Dynamics.
    11. Nicholas Sly, 2016. "Global Uncertainty and U.S. Exports," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-23.

    More about this item

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F1 - International Economics - - Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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