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American Economic Review Vol. 100 No. 5 2010

Inventories, Lumpy Trade, and Large Devaluations

George Alessandria1; Joseph P. Kaboski2; Virgiliu Midrigan3

1 Research Department, Federal Reserve Bank of Philadelphia, Ten Independence Mall, Philadelphia, PA 19106. · 2 Department of Economics, 434 Flanner Hall, University of Notre Dame, Notre Dame, IN 46556. · 3 Economics Department, New York University, 9 W. 4th Street, 6FL, New York, NY 10012.

Abstract

We document that delivery lags and transaction-level economics of scale matter for international trade, leading importers to import infrequently and hold additional inventory. In a model with these frictions calibrated to empirical measures of inventory and trade lumpiness, these frictions have a large (20 percent) tariff equivalent, mostly due to inventory carrying costs. These frictions also alter the dynamics of imports and prices. Consistent with evidence from large devaluation episodes in six developing economies, following terms-of-trade and interest rate shocks, the model generates a short-term implosion of imports and a gradual increase in the retail price of imports.

DOI
10.1257/aer.100.5.2304
Volume
100
Issue
5
Pages
2304-2339
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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