What Does Financial Crisis Tell Us About Exporter Behavior and Credit Reallocation?

Yang Jiao and Yi Wen

No 2019-23, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Using Japanese firm data covering the Japanese financial crisis in the early 1990s, we find that exporters' domestic sales declined more significantly than their foreign sales, which in turn declined more significantly than non-exporters' sales. This stylized fact provides a new litmus test for different theories proposed in the literature to explain a trade collapse associated with a financial crisis. In this paper we embed the Melitz's (2003) model into a tractable DSGE framework with incomplete financial markets and endogenous credit allocation to explain both the Japanese firm-level data and the well-documented aggregate trade collapse during a financial crisis in world economic history. The model highlights the role of credit reallocation between non-exporters and exporters as the main mechanism in explaining exporters' behaviors and trade collapse following a financial crisis.

Keywords: Credit Crunch; Credit Reallocation; Exporter Behavior; Financial Crisis; Heterogeneous Firms; Trade Collapse (search for similar items in EconPapers)
JEL-codes: E22 E32 E44 F00 F10 F11 F41 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-09-24
New Economics Papers: this item is included in nep-dge, nep-fdg, nep-int and nep-mac
Note: Related to St. Louis Working Paper 2012-003.
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2019-023

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DOI: 10.20955/wp.2019.023

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