Microeconomic uncertainty, international trade, and aggregate fluctuations

George Alessandria, Horag Choi, Joseph P. Kaboski, Virgiliu Midrigan

    Research output: Contribution to journalArticle

    Abstract

    The extent and direction of causation between micro volatility and business cycles are debated. We examine, empirically and theoretically, the source and effects of fluctuations in the dispersion of producer-level sales and production over the business cycle. On the theoretical side, we study the effect of exogenous first- and second-moment shocks to producer-level productivity in a two-country DSGE model with heterogeneous producers and an endogenous dynamic export participation decision. First-moment shocks cause endogenous fluctuations in producer-level dispersion by reallocating production internationally, while second-moment shocks lead to increases in trade relative to GDP in recessions. Empirically, using detailed product-level data in the motor vehicle industry and industry-level data of U.S. manufacturers, we find evidence that international reallocation is indeed important for understanding cross-industry variation in cyclical patterns of measured dispersion.

    Original languageEnglish (US)
    Pages (from-to)20-38
    Number of pages19
    JournalJournal of Monetary Economics
    Volume69
    DOIs
    StatePublished - Jan 1 2015

    Keywords

    • Establishment heterogeneity
    • Exporting
    • Sunk cost
    • Uncertainty

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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