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  5. Deglobalization? Revisiting the Links between Trade, Capital Flows, Supply Chains
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Deglobalization? Revisiting the Links between Trade, Capital Flows, Supply Chains

Paper Session

Friday, Jan. 6, 2023 10:15 AM - 12:15 PM (CST)

Hilton Riverside, Royal
Hosted By: American Economic Association
  • Chair: Sebnem Kalemli-Ozcan, University of Maryland

Global Supply Chain Pressures, International Trade and Inflation

Julian di Giovanni
,
Federal Reserve Bank of New York
Sebnem Kalemli-Ozcan
,
University of Maryland
Alvaro Silva
,
University of Maryland
Muhammed Yildirim
,
Harvard University and Koç University

Abstract

We study the effects of COVID-19 on Eurozone inflation under pandemic-driven sectoral demand and supply shocks and policy-driven aggregate demand stimulus during the recovery phase. Calibration exercises based on models rich with these shocks and global input-output linkages delivers three key results: 1) International trade, driven by higher aggregate demand due to monetary and fiscal stimulus, could have been much higher without the supply chain disruptions caused by the pandemic given the large size of the stimulus. 2) Compositional effects---switch between goods and services consumption--- are amplified through global input-output linkages and have an important role on quantity and price changes both during the initial lockdown phase and the later recovery phase. 3) Inflation can be broad based under sector-specific labor shortages leading to wage growth even though not every sector suffer from such labor supply constraints

Networks, Barriers, and Trade

David Baqaee
,
University of California-Los Angeles
Emmanuel Farhi
,
Harvard University

Abstract

We study a non-parametric class of neoclassical trade models with international production networks and arbitrary distortions. We characterize their properties in terms of sufficient statistics useful for growth and welfare accounting as well as for counterfactuals. Using these sufficient statistics, we characterize societal losses from increases in tariffs and iceberg trade costs, and highlight the qualitative and quantitative importance of accounting for intermediates. Finally, we establish a formal duality between open and closed economies and use this to analytically quantify the gains from trade. Our results, which can be used to compute local and global counterfactuals, provide an analytical toolbox for studying large-scale trade models. Therefore, this paper helps bridge the gap between computation and theory.

Interest Rates and World Trade: An `Austrian' Perspective

Pol Antras
,
Harvard University

Abstract

This paper develops a framework to study the interplay between world trade and interest rates. The model incorporates an explicit notion of time and of production length, along the lines of the `Austrian' tradition of Böhm-Bawerk (1889). Changes in interest rates affect production lengths, labor productivity, and the financial costs of exporting. I decompose the response of the volume of world trade to changes in interest rates into four components: (i) a labor productivity effect, (ii) a propensity to consume out of labor income effect, (iii) a temporal dimension of variable trade costs effect, and (iv) a selection into exporting effect.

Excess Savings and Twin Deficits: The Transmission of Fiscal Stimulus in Open Economies

Rishab Agarwal
,
Stanford University
Adrien Auclert
,
Stanford University
Matthew Rognlie
,
Northwestern University
Ludwig Straub
,
Harvard University

Abstract

Three salient facts have emerged in the world economy since 2020. First, a large increase in private savings around the world, especially in the United States. Second, an increase in the current account deficit in the United States, with a corresponding surplus in the rest of the world. Third, a large increase in the fiscal deficit around the world, especially in the United States. In this paper, we argue that the third fact caused the first two. We do so in the context of a many-country heterogeneous-agent model in which deficit-financed fiscal transfers simultaneously lead to a large increase in private savings (“excess savings”) and persistent current account deficits (“twin deficits”). Our model is also consistent with the distribution of U.S. checking account balances over this period: in the model and the data, a few quarters after a fiscal transfer, most of the excess savings are held by the rich. At this point, there is still a contribution to demand from spending down excess savings, but it is limited by the low marginal propensities to consume of the rich.

Discussant(s)
Kei-Mu Yi
,
University of Houston
Nitya Pandalai-Nayar
,
University of Texas-Austin
Muhammed Yildirim
,
Harvard University
Fabrizio Perri
,
Federal Reserve Bank of Minneapolis
JEL Classifications
  • F1 - Trade
  • E3 - Prices, Business Fluctuations, and Cycles