NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inventories, Lumpy Trade, and Large Devaluations

George Alessandria, Joseph Kaboski, Virgiliu Midrigan

NBER Working Paper No. 13790
Issued in February 2008
NBER Program(s):   IFM   ITI

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.

download in pdf format
   (507 K)

email paper

This paper is available as PDF (507 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w13790

Published: George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "Inventories, Lumpy Trade, and Large Devaluations," American Economic Review, American Economic Association, vol. 100(5), pages 2304-39, December. citation courtesy of

Users who downloaded this paper also downloaded these:
Alessandria, Kaboski, and Midrigan w16059 The Great Trade Collapse of 2008-09: An Inventory Adjustment?
Davis, Haltiwanger, Jarmin, and Miranda w12354 Volatility and Dispersion in Business Growth Rates: Publicly Traded versus Privately Held Firms
Graddy and Hall w15019 A Dynamic Model of Price Discrimination and Inventory Management at the Fulton Fish Market
Blinder and Maccini w3408 The Resurgence of Inventory Research: What Have We Learned?
Kryvtsov and Midrigan w14651 Inventories, Markups, and Real Rigidities in Menu Cost Models
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us