TY  - JOUR
AU  - Alessandria,George
AU  - Kaboski,Joseph
AU  - Midrigan,Virgiliu
TI  - Inventories, Lumpy Trade, and Large Devaluations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13790
PY  - 2008
Y2  - February 2008
UR  - http://www.nber.org/papers/w13790
L1  - http://www.nber.org/papers/w13790.pdf
N1  - Author contact info:
George Alessandria
Research Department
Federal Reserve Bank of Philadelphia
Ten Independence
Philadelphia, PA 19106
E-Mail: George.Alessandria@phil.frb.org

Joseph P. Kaboski
Department of Economics and Econometrics
University of Notre Dame
434 Flanner Hall
Notre Dame, IN 46556
Tel: 574-631-9906
E-Mail: jkaboski@nd.edu

Virgiliu Midrigan
Department of Economics
New York University
19 W. 4th St.
New York, NY 10012
Tel: 212/992-8081
Fax: 212/995-4186
E-Mail: virgiliu.midrigan@nyu.edu
AB  - 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.
ER  -