Working Paper: NBER ID: w20616
Authors: 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 effect of exogenous first- and second-moment shocks to producer-level productivity in a two-country DSGE model with heterogenous 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: Microeconomic uncertainty; International trade; Aggregate fluctuations
JEL Codes: E31; F12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| first-moment shocks to productivity (O49) | dispersion of sales growth (F62) |
| first-moment shocks to productivity (O49) | reallocation of purchases between domestic and imported goods (F16) |
| first-moment shocks to productivity (O49) | reallocation of production (L23) |
| second-moment shocks (C69) | increase in exports (F10) |
| second-moment shocks (C69) | dispersion of sales growth (F62) |
| changes in the real exchange rate (F31) | net exports (F29) |
| industry volatility (L19) | trade reallocation (F16) |