Microeconomic uncertainty, international trade, and aggregate fluctuations

George Alessandria, Horag Choi, Joseph Kaboski and Virgiliu Midrigan

No 14-30, Working Papers from Federal Reserve Bank of Philadelphia

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 (search for similar items in EconPapers)
JEL-codes: E31 F12 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014-09-30
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Related works:
Journal Article: Microeconomic uncertainty, international trade, and aggregate fluctuations (2015)
Working Paper: Microeconomic Uncertainty, International Trade, and Aggregate Fluctuations (2014)
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