Fernando Leibovici

Financial frictions and new exporter dynamics

This article studies the role of financial frictions as a barrier to international trade. We study new exporter dynamics to identify how these frictions affect export decisions. We introduce a borrowing constraint and working capital requirements into a standard model of international trade, with exports more working capital intensive than domestic sales. Our model can quantitatively account for new exporter dynamics in contrast to a model with sunk export entry costs. We provide additional evidence in support of our mechanism. We find that financial frictions reduce the impact of trade liberalization, suggesting that they constitute an important trade barrier.

International Trade and Intertemporal Substitution

This paper quantitatively investigates the extent to which variation in the intertemporal marginal rate of substitution can help account for puzzling features of cyclical fluctuations of international trade volumes. Our insight is that, because international trade is time-intensive, variation in the rate at which agents are willing to substitute across time affects how trade volumes respond to changes in output and prices. We use a standard small open economy model with time-intensive international trade, calibrated to match key features of U.S. data and disciplining the variation in the intertemporal marginal rate of substitution using asset price data. We find that variation in the intertemporal marginal rate of substitution helps rationalize puzzling features of import fluctuations and that this mechanism is quantitatively important during both normal and crisis times.

FINANCIAL FRICTIONS AND NEW EXPORTER DYNAMICS: FINANCIAL FRICTIONS AND NEW EXPORTER DYNAMICS

This article studies the role of financial frictions as a barrier to international trade. We study new exporter dynamics to identify how these frictions affect export decisions. We introduce a borrowing constraint and working capital requirements into a standard model of international trade, with exports more working capital intensive than domestic sales. Our model can quantitatively account for new exporter dynamics in contrast to a model with sunk export entry costs. We provide additional evidence in support of our mechanism. We find that financial frictions reduce the impact of trade liberalization, suggesting that they constitute an important trade barrier.

Financial Development and International Trade

This paper studies the industry-level and aggregate implications of financial development on international trade. I set up a multi-industry general equilibrium model of international trade with heterogeneous firms subject to export entry costs and financial frictions, in which industries differ in their dependence on external finance. The model is parametrized to match key features of plant-level data. I find that financial frictions have a large effect on the extent of international trade across industries, but a negligible impact at the aggregate-level. I show that these findings are consistent with estimates from cross-country industry- and aggregate-level data.

International Trade Fluctuations and Monetary Policy

This paper studies the role of trade openness for the design of monetary policy. We extend a standard small open economy model of monetary policy to capture cyclical fluctuations of international trade flows, and parameterize it to match key features of the data. We find that accounting for trade fluctuations matters for monetary policy: when the monetary authority follows a Taylor rule, inflation and the output gap are more volatile. Moreover, we find that the volatility of these variables is significantly higher when the central bank follows the optimal policy based on a model that cannot account for international trade fluctuations.

Trade in Commodities and Business Cycle Volatility

This paper studies the role of the patterns of production and international trade on the higher business cycle volatility of emerging economies. We study a multi-sector small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-sectional differences across countries: emerging economies run trade surpluses in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to fluctuations in commodity prices. We show evidence consistent with these findings using cross-country data.

Financial Frictions and Export Dynamics in Large Devaluations

We study the role of financial frictions and balance-sheet effects in accounting for the dynamics of aggregate exports in large devaluations. We investigate a small open economy with heterogeneous firms and idiosyncratic productivity shocks, where firms face financing constraints and debt can be denominated in domestic or foreign units. In our model, a real depreciation affects firms through two channels. On the one hand, it increases the returns to selling internationally, making exporting more profitable. On the other hand, it tightens the borrowing constraint by increasing the value of foreign-denominated debt relative to firms’ net worth. We calibrate the model to match key features from plant-level data and use it to quantify the importance of these channels. We find that financial frictions slow down the response of aggregate exports, and foreign-denominated debt amplifies this effect by decreasing firms’ net worth on impact. However, we find that these channels can only explain a small fraction of the dynamics of exports observed in the data. While financial frictions and balance-sheet effects distort production and investment decisions, exports are significantly less affected as firms reallocate sales across markets in response to the change in the real exchange rate. We document the importance of cross-market reallocation for export dynamics using firm-level data from Mexico’s devaluation in 1994.

Trade in Commodities and Emerging Market Business Cycles

This paper studies the role of the sectoral composition of production and trade in accounting for emerging market business cycles. We document that in emerging economies the production of commodities is a larger share of total production than in developed ones, and that they run larger sectoral and aggregate trade imbalances. We set up a small open economy model that produces commodities and manufactures and trades them with the rest of the world. We contrast the implied business cycle dynamics of two economies that are respectively calibrated to match the observed differences between developed and emerging countries. In the model, shocks to the relative price of commodities lead to much larger fluctuations in output, net exports and TFP in the emerging economy, accounting for the higher volatility that we observe in the data. A key driver of these effects is that emerging economies consume relatively more manufactures than they produce.