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Lumpy Trade and the Price of Imports in Large Devaluations

Virgiliu Midrigan, Joseph Kaboski and George Alessandria

No 924, 2007 Meeting Papers from Society for Economic Dynamics

Abstract: We document that international transactions for narrowly defined goods occur infrequently. We study the implications of this lumpiness of international trade for the response of prices and quantities during large devaluations. Using a calibrated inventory management model of international trade we find that, given the higher post-crisis import prices, importers initially hold larger than desired inventories. In response, initial pass-through is incomplete, but gradually rises, while the fraction of varieties drops precipitously before slowly, but only partially, recovering. The model thus rationalizes the slow response of imported goods prices to large devaluations.

Date: 2007
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More papers in 2007 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
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