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The Great Trade Collapse: An Evaluation of Competing Stories

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  • Hakan Yilmazkuday

    (Department of Economics, Florida International University)

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 eighteen quarterly series from the U.S., 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.

Suggested Citation

  • Hakan Yilmazkuday, 2019. "The Great Trade Collapse: An Evaluation of Competing Stories," Working Papers 1902, Florida International University, Department of Economics.
    • Handle: RePEc:fiu:wpaper:1902
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    Cited by:

    1. Ha,Jongrim & Kose,Ayhan & Ohnsorge,Franziska Lieselotte, 2023. "What Explains Global Inflation," Policy Research Working Paper Series 10648, The World Bank.

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    More about this item

    Keywords

    Trade Collapse; Inventories; Intermediate Inputs; Trade Finance; Protectionist Policies;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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