Microeconomic Uncertainty, International Trade, and Aggregate Fluctuations

43 Pages Posted: 29 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 Midrigan

New York University (NYU)

Multiple version iconThere are 2 versions of this paper

Date Written: September 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 expect 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.

Keywords: Sunk cost, Establishment heterogeneity, Exporting, Uncertainty

JEL Classification: E31, F12

Suggested Citation

Alessandria, George A. and Choi, Horag and Kaboski, Joseph P. and Midrigan, Virgiliu, Microeconomic Uncertainty, International Trade, and Aggregate Fluctuations (September 2014). FRB of Philadelphia Working Paper No. 14-30. Available at SSRN: https://ssrn.com/abstract=2515306 or http://dx.doi.org/10.2139/ssrn.2515306

George A. Alessandria (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States
(215) 574-6402 (Phone)
(215) 574-4364 (Fax)

Horag Choi

Monash University, Economics Department ( email )

900 Dandenong Road
Caulfield East, Victoria 3145
Australia
+61-3-9903-2848 (Phone)

Joseph P. Kaboski

Ohio State University (OSU) - Economics ( email )

410 Arps Hall
1945 N. High St.
Columbus, OH 43210-1172
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

Virgiliu Midrigan

New York University (NYU)

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
11
Abstract Views
277
PlumX Metrics