Microeconomic Uncertainty, International Trade, and Aggregate Fluctuations

43 Pages Posted: 27 Oct 2014

See all articles by George Alessandria

George Alessandria

Federal Reserve Bank of Philadelphia

Horag Choi

Monash University, Economics Department

Joseph P. Kaboski

Ohio State University (OSU) - Economics; National Bureau of Economic Research (NBER); University of Notre Dame - Department of Economics

Virgiliu Midrigin

New York University (NYU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: October 2014

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 heterogenous 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.

Suggested Citation

Alessandria, George A. and Choi, Horag and Kaboski, Joseph P. and Midrigin, Virgiliu, Microeconomic Uncertainty, International Trade, and Aggregate Fluctuations (October 2014). NBER Working Paper No. w20616. Available at SSRN: https://ssrn.com/abstract=2515194

George A. Alessandria (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Horag Choi

Monash University, Economics Department ( email )

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Joseph P. Kaboski

Ohio State University (OSU) - Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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University of Notre Dame - Department of Economics ( email )

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Virgiliu Midrigin

New York University (NYU) - Department of Economics ( email )

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New York, NY 10011
United States

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