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All Shook Up: International Trade and Firm-level Volatility

Author

Listed:
  • Mine Senses

    (Johns Hopkins University)

  • Andrei Zlate

    (Federal Reserve Bank of Boston)

  • Christopher Kurz

    (Board of Governors)

Abstract

Despite the large theoretical literature on the macroeconomic dynamics arising from international trade, there is little theoretical research that rationalizes the relationship between a firm's trading patterns and its volatility. Our paper attempts to fill this gap by exploring the relationship between firms' exporting and importing status and firm-level volatility in a dynamic, stochastic, general equilibrium model. We augment the framework with heterogeneous firms and endogenous exporting from Ghironi and Melitz (2005) to allow for international input sourcing. In this framework, we examine the firm-level volatility generated by the model for a cross-section of firm types, which are defined to reflect the rich heterogeneity in firms' international activities. In line with recent empirical evidence on the link between a firm's trade status and its volatility, the model predictions are: (1) Exporters display lower volatility than non-exporters, whereas importers display higher volatility that non-importers. (2) Firms that trade for longer durations display lower volatility than firms switching in and out of international trade. (3) Firms that export to uncorrelated foreign markets are less volatile, whereas firms importing from uncorrelated foreign suppliers are more volatile.

Suggested Citation

  • Mine Senses & Andrei Zlate & Christopher Kurz, 2017. "All Shook Up: International Trade and Firm-level Volatility," 2017 Meeting Papers 851, Society for Economic Dynamics.
  • Handle: RePEc:red:sed017:851
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    References listed on IDEAS

    as
    1. Andrei Zlate & Federico Mandelman, 2013. "Offshoring, Low-skilled Immigration and Labor Market Polarization," 2013 Meeting Papers 1073, Society for Economic Dynamics.
    2. Zlate, Andrei, 2016. "Offshore production and business cycle dynamics with heterogeneous firms," Journal of International Economics, Elsevier, vol. 100(C), pages 34-49.
    3. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 289-336.
    4. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, Oxford University Press, vol. 120(3), pages 865-915.
    5. Fattal Jaef, Roberto N. & Lopez, Jose Ignacio, 2014. "Entry, trade costs, and international business cycles," Journal of International Economics, Elsevier, vol. 94(2), pages 224-238.
    6. José L. Fillat & Stefania Garetto, 2015. "Risk, Returns, and Multinational Production," The Quarterly Journal of Economics, Oxford University Press, vol. 130(4), pages 2027-2073.
    7. Mandelman, Federico S., 2016. "Labor market polarization and international macroeconomic dynamics," Journal of Monetary Economics, Elsevier, vol. 79(C), pages 1-16.
    8. Liao, Wei & Santacreu, Ana Maria, 2015. "The trade comovement puzzle and the margins of international trade," Journal of International Economics, Elsevier, vol. 96(2), pages 266-288.
    9. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
    10. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-775, August.
    11. Fillat, José L. & Garetto, Stefania & Oldenski, Lindsay, 2015. "Diversification, cost structure, and the risk premium of multinational corporations," Journal of International Economics, Elsevier, vol. 96(1), pages 37-54.
    12. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Cited by:

    1. Horst Raff & Nicolas Schmitt & Frank Stähler, 2018. "How Importers May Hedge Demand Uncertainty," Discussion Papers dp18-03, Department of Economics, Simon Fraser University.

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