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Why is trade so volatile? The great trade collapse of 2008/09
| Content Provider | Semantic Scholar |
|---|---|
| Author | Novy, Dennis Taylor, Alan M. |
| Copyright Year | 2011 |
| Abstract | The recent global economic crisis has been characterized by sharp declines in economic output. However, the accompanying declines in international trade were even sharper, in some cases up to 50 percent. Standard models of international macroeconomics and international trade fail to account for the severity of the trade collapse. In this paper, we attempt to explain why international trade is so volatile in response to economic shocks. On the theoretical side, we combine the uncertainty shock approach by Bloom (2009) with a model of international trade. Bloom’s (2009) real-options approach is motivated by high-profile events that trigger an increase in uncertainty about the future path of the economy, for example the 9/11 terrorist attacks or the collapse of Lehman Brothers. In the wake of such events, firms adopt a ‘wait-and-see’ approach, slowing down their hiring and investment activities. Bloom (2009) shows that large uncertainty shocks typically lead to sharp recessions. Once the degree of uncertainty subsides, firms revert to their normal hiring and investment patterns and the economy recovers. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | https://editorialexpress.com/cgi-bin/conference/download.cgi?db_name=NASM2011&paper_id=605 |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
