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International Trade and Finance Interactions

Paper Session

Friday, Jan. 3, 2025 10:15 AM - 12:15 PM (PST)

San Francisco Marriott Marquis
Hosted By: Central Bank Research Association
  • Chair: Galina B. Hale, University of Califronia-Santa Cruz

Trade Protection, Stock Market Returns and Welfare

Mary Amiti
,
Federal Reserve Bank of New York
Matthieu Gomez
,
Columbia University
Sang Hoon Kong
,
Columbia University
David Weinstein
,
Columbia University

Abstract

This paper develops a rigorous methodology to assess the expected impact of a policy change on aggregate welfare using financial-market reactions to policy announcements. A critical ingredient is extracting the expected cash-flow component of stock-price movements due to a policy change. Seen through the lens of a specific factors model, a policy’s impact on cash flow is a sufficient statistic for identifying movements in sales, wages, employment, and total factor productivity. We apply this methodology to the U.S.-China trade war and find the welfare losses are an order of magnitude larger than those typically found in most studies.

Uncertainty and International Shipping

Linda S. Goldberg
,
Federal Reserve Bank of New York, NBER and CEPR
Fernando Leibovici
,
Federal Reserve Bank of St. Louis

Abstract

As the majority of global trade in goods and services is transported over water routes, shipping risk can contribute importantly to transport costs, import prices and patterns of international trade. This paper measure the extent and dynamics of shipping risk, and traces consequences. We develop a model based on the framework of Alessandria, Kaboski, and Midrigan (2010) to examine how firms' importing decisions and the dynamics of trade flows are affected by changes in shipping risk. Shipping risk measurement relies on financial derivatives. We analyze the relationship between our measure of shipping risk and various trade outcomes, including import price indices and measures of trade flows. We also investigate the heterogeneous effects of shipping risk across different product categories and countries, as some goods or trade relationships may be more sensitive to shipping disruptions than others.

EXIM's Exit: The Real Effects of Trade Financing by Export Credit Agencies

Chenzi Xu
,
University of California-Berkeley
Adrein Matray
,
Harvard University

Abstract

We study the role of Export Credit Agencies—the predominant tool of industrial policy—on firm behavior by using the effective shutdown of the Export-Import Bank of the United States (EXIM) from 2015-2019 as a natural experiment. We show that a 1% reduction in EXIM trade financing reduces exports in an industry by approximately 5%. The impact on firms' total revenues implies that the export shock has positive pass-through to domestic sales, and firms contract investment and employment. These negative effects for the average firm are amplified by increased capital misallocation across firms as those with higher ex-ante marginal revenue product of capital contract more. We model the effect of EXIM trade financing as lowering two types of input cost wedges: an exporting firm's financing friction, and an importer market friction. We show that both frictions are empirically relevant, indicating that even in well-developed financial markets, the supply of trade financing is plausibly constrained. These results provide a framework for the conditions under which Export Credit Agencies can boost exports and firm growth, and can act as a tool of industrial policy without necessarily leading to a misallocation of resources.
JEL Classifications
  • F3 - International Finance
  • F1 - Trade