This column looks at the effect that trade finance had on exports during the 1990s japanese financial crisis using firmlevel data. The problem of procyclicality countries dependent on exports of oil, minerals, and other primary commodities tend to have pronounced economic cycles. Consequences and prospects, edited by richard baldwin, vox eu ebook 27, pp. The role of banks and their trade finance services were highlighted by the financial crisis in 20082009, which triggered policy responses. Exports and financial shocks the quarterly journal of economics. First, i show that nancial shocks can propagate upstream if there are nancial linkages of rms and nancial frictions in trade. A case can be made for the great recession being the result of a large financial shock that makes household borrowing difficult. Assuming all of the documents are in order, the issuing. While financial shocks directly press for increases in the cost of external. Financial conditions are robust leading indicators, primarily via their effect on enterprise investment, and to a lesser extent on exports. While a large class of open economy models imply that large devaluations are associated with a sharp contemporaneous increase in aggregate exports, this. Assuming all of the documents are in order, the issuing bank will issue a bankers. A striking feature of many financial crises is the collapse of exports relative to output.
How can commodity exporters make fiscal and monetary policy. Jul 17, 2017 however, this result holds only for sectors depending more heavily on banking finance as opposed to interfirm finance. Trade elasticities jean imbsy isabelle m ejeanz september 2010 abstract we estimate the aggregate export and import price elasticities implied by a constant elasticity of substitution ces demand system, for more than 30 countries at various stages of development. Exports and financial shocks d e columbia university. China and india were among the fastest growing exporters. Capital unemployment, financial shocks, and investment slumps. Natural disasters, financial shocks, and firm export this version.
This study also develops a dsge model to clarify this finding, featuring financial shocks, enforcement constraint, and firm entry. Propagation of financial shocks in an inputoutput economy. Financial, like production, linkages between mnc foreign establishments and headquarters can transmit nancial shocks in mncshome countries to their foreign establishments. For an economy with limited financial openness, and a relatively open trade account, a model with exogenous terms of trade shocks is able to replicate the features of the business cycle. Exporters and shocks doireann fitzgeraldy stefanie hallerz first draft. Financial shocks, investment dynamics, search frictions, business cycles, capital reallocation, great recession i thank my advisors, martin uribe, stephanie schmittgroh e, guillermo calvo, michael woodford, and ricardo reis for guidance and support. For very useful comments and suggestions, i thank jennifer lao, emi nakamura. We find that financial shocks contributed significantly to the observed dynamics of real and financial variables. What do we know about the relationship between access to. The recent and unprecedented collapse in exports in asia has three notable features. Exports and financial shocks mary amiti and david e.
The main adjustment mechanism to oil shocks is based on the trade channel, which focuses on the dynamics of energy exports and imports for exporting and importing countries. This paper has benefited from extensive discussions with yaniv yedidlevi. International finance and macroeconomics, international trade and investment. Trade elasticities are given by weighted averages of sectorspeci c. March 20 daisuke miyakawa development bank of japanricf kaoru hosono gakushuin university ministry of finance taisuke uchino daito bunka university rieti arito ono mizuho research institute hirofumi uchida kobe university. Stefanie haller is grateful for financial support from the irc under the grant titled exporters and shocks. This is partly due to the differences in the models used to examine the issue.
A number of observers have suggested that one reason for the dramatic decline in the world export to gdp ratio was due to declines in the availability of trade finance. We are also grateful for comments and suggestions from costas arkolakis, kim ruhl and jim tybout. Incorporating macrofinancial linkages into forecasts using. In the 2008 financial crisis, real world exports plunged 17 percent while gdp fell 5 percent. The group external demand summarises shocks to foreign demand and shocks to the trade equations, where the latter affect trade volumes and prices for given levels of foreign demand. The effect of the banking crises on exports is robust and additional to external demand shocks. Exports and financial shocks mary amiti federal reserve bank of new york and cepr david e.
The current expectation is that the global economy is set for a sharp, but shortlived recession as evidence shows that some economic activity tends to be delayed rather than destroyed entirely in this type of shock. Natural disasters, financial shocks, and firm export. Growth in low and middleincome economies was led by exports, which grew at an average annual rate of 12 percent over 200007. Trade elasticities federal reserve bank of san francisco. Our paper is the first to establish a causal link between the health of banks providing. In response to adverse financial conditions, fewer firms enter the export markets and existing firms export less, causing the total number of exports to shrink. Although this cyclical variability is to some extent inevitable, some of its impact can be reduced through wellchosen regimes for monetary and fiscal policy. First, the fall in exports across asia, from japan to indonesia beginning from july 2008 to the trough around february 2009, was highly synchronized. Policies to alleviate todays turmoil and pave the way to a sustainable future governments must take immediate steps to address the human, economic and financial havoc being wrought by the covid19 pandemic and to prevent a potentially devastating debt crisis. The recent events in the financial sector show up as a tightening of firms financing conditions which contributed to the 20082009 recession. F21, f23, f34, g21 the authors would especially like to thank geoffrey barnes and tyler bodinesmith for excellent research assistance. This paper examines whether the drying up of trade finance can help explain the large drops in exports relative to output. Assuming all of the documents are in order, the issuing bank will. Exports led growth integration of the global economy was marked by a rapid increase in trade.
Weinstein columbia university and nber october 28, 2009 abstract. Weinstein columbia university and nber november 24, 2009 abstract. Panel regressions show that worsening financial conditions discourage exports by reducing both the variety of goods exported and the export volumes of individual goods. Exports and financial shocks 1845 there have been a number of papers documenting the added time required for international transactions.
Sectors hit hardest by the pandemic are automotive, textiles and electronics. Together, these shocks affect euro area net exports. Second, i nd, based on the inputoutput matrix and the bond yield data in the u. An economic shock is an event that occurs outside of an economy, and produces a significant change within an economy. Weinstein columbia university and nber february 25, 2011 abstract. Impact on asia and policy challenges ahead heng swee keat. How international trade is affected by the financial crisis econstor. The resulting countrytime specific shocks are used to predict exports.
If the documents have been made available under an open. This paper studies the relationship between access to credit, demand shocks, and export market adjustments using firmlevel panel survey data for 24 economies in the eastern europe and central asian region. The channel involves large reductions in house prices, which trigger sharp reductions in consumption. Financial frictions and export dynamics in large devaluations. The baseline specification tests whether countrylevel trade finance supply shocks explain the variation in export growth rates controlling for a common time effect and a country. Exports and financial shocks mary amiti federal reserve bank of new york david e. However, as recession hit the developed countries, those whose exports were most affected were the ones that relied excessively on external demand, as recently shown by some east asian countries. Exports and financial shocks federal reserve bank of.
The global financial crisis and middleincome countries. Exports and financial shocks european trade study group. E32,e44,f40,g21 abstract a striking feature of many financial crises is the collapse of exports relative to output. By contrast, changes in financial conditions impact households consumption contemporaneously, perhaps as a result of wealth effects, the impact of expectations, or common shocks on consumer. The great recession and financial shocks ideasrepec. Furthermore, sectors characterized by higher degree of assets tangibility appear to be more resilient in the face of a banking crisis. International finance and macroeconomics, international trade and investment a striking feature of many financial crises is the collapse of exports relative to output.
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