Inventories, lumpy trade, and large devaluations
By: George Alessandria, Joseph Kaboski, Virgiliu Midrigan.
Contributors: Kaboski, Joseph Paul.; Midrigan, Virgiliu.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13790; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13790.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "Fixed transaction costs and delivery lags are important costs of international trade.  These costs lead firms to import infrequently and hold substantially larger inventories of imported goods than domestic goods.  Using multiple sources of data, we document these facts.  We then show that a parsimoniously parameterized model economy with importers facing an (S, s)-type inventory management problem successfully accounts for these features of the data.  Moreover, the model can account for import and import price dynamics in the aftermath of large devaluations.  In particular, desired inventory adjustment in response to a sudden, large increase in the relative price of imported goods creates a short-term trade implosion, an immediate, temporary drop in the value and number of distinct varieties imported, as well as a slow increase in the retail price of imported goods.  Our study of 6 current account reversals following large devaluation episodes in the last decade provide strong support for the model's predictions"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/13/2008.

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