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Federal Reserve Bank of Philadelphia
Working Papers
Microeconomic uncertainty, international trade, and aggregate fluctuations
George Alessandria
Horag Choi
Joseph P. Kaboski
Virgiliu Midrigan
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.


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George Alessandria & Horag Choi & Joseph P. Kaboski & Virgiliu Midrigan, Microeconomic uncertainty, international trade, and aggregate fluctuations, Federal Reserve Bank of Philadelphia, Working Papers 14-30, 30 Sep 2014.
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Keywords: Sunk cost; Establishment heterogeneity; Exporting; Uncertainty
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