NBER Working Papers by Dennis Novy

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Working Papers

February 2014Trade and Uncertainty
with Alan M. Taylor: w19941
We offer a new explanation as to why international trade is so volatile in response to economic shocks. Our approach combines the uncertainty shock idea of Bloom (2009) with a model of international trade, extending the idea to the open economy. Firms import intermediate inputs from home or foreign suppliers, but with higher costs in the latter case. Due to fixed costs of ordering firms hold an inventory of intermediates. We show that in response to an uncertainty shock firms optimally adjust their inventory policy by cutting their orders of foreign intermediates disproportionately strongly. In the aggregate, this response leads to a bigger contraction in international trade flows than in domestic economic activity. We confront the model with newly-compiled monthly aggregate U.S. import da...
August 2009Trade Booms, Trade Busts, and Trade Costs
with David S. Jacks, Christopher M. Meissner: w15267
What has driven trade booms and trade busts in the past and present? We derive a micro-founded measure of trade frictions from leading trade theories and use it to gauge the importance of bilateral trade costs in determining international trade flows. We construct a new balanced sample of bilateral trade flows for 130 country pairs across the Americas, Asia, Europe, and Oceania for the period from 1870 to 2000 and demonstrate an overriding role for declining trade costs in the pre-World War I trade boom. In contrast, for the post-World War II trade boom we identify changes in output as the dominant force. Finally, the entirety of the interwar trade bust is explained by increases in trade costs.

Published: “Trade Booms, Trade Busts and Trade Costs” (2011) Journal of International Economics Vol. 83 (2), pp. 185-201 citation courtesy of

October 2006Trade Costs in the First Wave of Globalization
with David S. Jacks, Christopher M. Meissner: w12602
What drives globalization today and in the past? We employ a new micro-founded measure of bilateral trade costs based on a standard model of trade in differentiated goods to address this question. These trade costs gauge the difference between observed bilateral trade and frictionless trade. They comprise tariffs, transportation costs and all other factors that impede international trade but which are inherently difficult to observe. Trade costs fell on average by ten to fifteen percent between 1870 and 1913. We also use this measure to decompose the growth of global trade over that period and find that roughly 44 percent of the global trade boom can be explained by reductions in trade costs; the remaining 56 percent is attributable to economic expansion.

Published: David Jacks, Christopher M. Meissner and Dennis Novy, “Trade Costs in the First Wave of Globalization” (2010) Explorations in Economic History vol. 47 (2) pp. 127-141. citation courtesy of

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