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Financial Frictions, the Great Trade Collapse and International Trade over the Business Cycle

cam.issuedOnline2018-11-06
dc.contributor.authorWatson, A
dc.contributor.orcidWatson, A [0000-0001-5017-8577]
dc.date.accessioned2019-01-12T00:30:17Z
dc.date.available2019-01-12T00:30:17Z
dc.date.issued2019-02
dc.description.abstractThis paper investigates the impact of financial frictions on the dynamics of international trade over the business cycle and their role in the great trade collapse of 2008-2009. The study introduces cash flow constraints into an open-economy general equilibrium model with heterogeneous firms in which international trade is more dependent on external finance than domestic sales. The analysis demonstrates that endogenously driven countercyclical changes in the external finance premium amplify the effects of real and financial shocks on trade and help to explain the high trade income elasticity observed in the data. The paper shows that trade finance significantly contributed to the decline in trade during the global financial crisis. The model developed is also able to account for the sharp deterioration in the labour wedge and for the changes in the relative prices of domestic and exported goods during the crisis.
dc.description.sponsorshipThis research was funded by the Economic and Social Research Council, UK, and Corpus Christi College, Cambridge, UK.
dc.identifier.doi10.17863/CAM.27493
dc.identifier.eissn1573-708X
dc.identifier.issn0923-7992
dc.identifier.urihttps://www.repository.cam.ac.uk/handle/1810/287875
dc.language.isoeng
dc.publisherSpringer Science and Business Media LLC
dc.publisher.urlhttp://dx.doi.org/10.1007/s11079-018-9512-1
dc.rightsAttribution 4.0 International
dc.rights.urihttps://creativecommons.org/licenses/by/4.0/
dc.subject38 Economics
dc.subject3801 Applied Economics
dc.subject3802 Econometrics
dc.subject8 Decent Work and Economic Growth
dc.titleFinancial Frictions, the Great Trade Collapse and International Trade over the Business Cycle
dc.typeArticle
dcterms.dateAccepted2018-08-13
prism.endingPage64
prism.issueIdentifier1
prism.publicationDate2019
prism.publicationNameOpen Economies Review
prism.startingPage19
prism.volume30
rioxxterms.licenseref.startdate2019-02-15
rioxxterms.licenseref.urihttp://www.rioxx.net/licenses/all-rights-reserved
rioxxterms.typeJournal Article/Review
rioxxterms.versionVoR
rioxxterms.versionofrecord10.1007/s11079-018-9512-1

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