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THE GREAT TRADE COLLAPSE: AN EVALUATION OF COMPETING STORIES

Published online by Cambridge University Press:  03 September 2019

Hakan Yilmazkuday
Hakan Yilmazkuday*
Affiliation:
Florida International University
*
Address correspondence to: Hakan Yilmazkuday, Department of Economics, Florida International University, Miami, FL 33199, USA. e-mail: [email protected]. Phone: 305-348-2316. Fax: 305-348-1524
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Abstract

The reduction in international trade has been more than the reduction in economic activity during the 2008 financial crisis, against the one-to-one relationship between them implied by standard trade models. This so-called the Great Trade Collapse (GTC) has been investigated extensively in the literature resulting in alternative competing stories as potential explanations. By introducing and estimating a dynamic stochastic general equilibrium model using 18 quarterly series from the USA, including those that represent the competing stories, this paper evaluates the contribution of each story to GTC. The results show that retail inventories have contributed the most to the collapse and the corresponding recovery, followed by protectionist policies, intermediate-input trade, and trade finance. Productivity and demand shocks have played negligible roles.

Keywords

Trade CollapseInventoriesIntermediate InputsTrade FinanceProtectionist Policies
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 4 , June 2021 , pp. 1053 - 1089
Copyright
© Cambridge University Press 2019

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Footnotes

The author would like thank the editor William A. Barnett, an associate editor, two anonymous referees, and the participants of Midwest International Trade Meetings at Indiana University Bloomington, Society for Nonlinear Dynamics and Econometrics Meetings at Dallas Fed, Midwest Macroeconomics Meetings at University of Colorado-Boulder, and at University of Illinois Urbana–Champaign for their helpful comments and suggestions. The usual disclaimer applies.

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