Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters

The failure of trade economists to anticipate the extreme drop in trade post Lehman Brothers bankruptcy suggests that the behavior of trade in exceptional circumstances may still be poorly understood. This paper explores whether uncertainty shocks...

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Main Authors:	Taglioni, Daria, Zavacka, Veronika
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2013
Subjects:	ACCOUNTING ADJUSTMENT COST ADJUSTMENT COSTS ADJUSTMENT MECHANISM ADVANCED COUNTRIES ADVERSE EFFECT ADVERSE IMPACT AGGREGATE CONSUMPTION AGGREGATE DEMAND ASSET PRICING AUTOREGRESSION BALANCE SHEET BALANCE SHEETS BANKING CRISES BANKRUPTCY BILATERAL EXCHANGE RATE BILATERAL EXCHANGE RATES BILATERAL TRADE BILATERAL TRADE DATA BUSINESS CYCLE CAPITAL GOODS CAPITAL INVESTMENT COMMON CURRENCY COMPETITIVENESS CONSUMER DURABLES CONSUMER EXPENDITURE CONSUMER EXPENDITURES CONSUMER PRICE CONSUMER PRICE INDEX CONSUMER SPENDING CONSUMERS CONSUMPTION DECISIONS CONSUMPTION EXPENDITURE CONSUMPTION EXPENDITURES CONSUMPTION GOODS CONTROL VARIABLES COST OF FINANCE COUNTRY OF ORIGIN CREDIT CONSTRAINTS CREDIT INTERMEDIATION DATA AVAILABILITY DEBT DEBT CRISIS DEPENDENT VARIABLE DEPRECIATION DEPRESSION DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DISCOUNTED VALUE DISPOSABLE INCOME DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRICES DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS ECONOMIC CRISIS ECONOMIC EFFECT ECONOMIC ENVIRONMENT ECONOMIC HISTORY ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC SHOCK EFFECTIVE EXCHANGE RATE ELASTICITY EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE VOLATILITY EXCHANGE RATES EXPENDITURE FUNCTION EXPORT COMPETITIVENESS EXPORTER EXPORTERS EXPORTS FEDERAL RESERVE FINANCIAL ASSETS FINANCIAL CONSTRAINTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL MARKET FINANCIAL MARKETS FIXED EFFECTS FORECASTING MODELS FOREIGN BANKS FOREIGN MARKETS FUTURE PRICES GDP GLOBALIZATION GRAVITY MODELS IMPLIED VOLATILITY IMPORT IMPORT PRICES IMPORTS INCOME INCOME EFFECT INCOME SHOCKS INCOME STREAM INCOMES INCREASING RETURNS INSURANCE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL TRADE INVENTORIES INVENTORY INVESTMENT DECISIONS INVESTMENT GOODS INVESTMENT PROJECTS INVESTMENT SPENDING ITC LACK OF CONFIDENCE LIQUIDITY LIQUIDITY CONSTRAINTS MACROECONOMIC CONDITIONS MACROECONOMIC VARIABLES MACROECONOMICS MARGINAL COST MARKET ACCESS MARKET ANALYSIS MARKET LEVELS MARKET RATE MONETARY ECONOMICS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKETS NOMINAL EXCHANGE RATE OPTIMAL PORTFOLIO OPTIMIZATION OUTPUT PERISHABLE GOODS PERMANENT INCOME POLITICAL ECONOMY PORTFOLIO PORTFOLIO CHOICE POVERTY REDUCTION RATE OF INVESTMENT REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE RATE RECESSION RELATIVE PRICE RELATIVE PRICES RETURN SALES SAVINGS SHORTFALL SIDE EFFECTS SOVEREIGN DEBT SPEED OF ADJUSTMENT SPREAD STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET STOCK MARKET CRASHES STOCK MARKET INDEX STOCK MARKET VOLATILITY STOCK PRICES STOCKS SUBSTITUTION SUBSTITUTION EFFECT SUNK COSTS SUPPLIERS SUPPLY CHAIN SUPPLY CHAINS TOTAL EXPORTS TOTAL IMPORTS TRADE EQUATIONS TRADE STATISTICS TRADING TRADING PARTNER TRADING PARTNERS TRANSACTION TRANSACTION COSTS TRANSITORY INCOME TREASURY TREASURY BILL TREASURY BILL RATE UNCERTAINTY UNEMPLOYMENT WEALTH WEALTH EFFECT WEALTH EFFECTS WORLD TRADE
Online Access:	http://documents.worldbank.org/curated/en/2012/10/16829842/innocent-bystanders-foreign-uncertainty-shocks-harm-exporters http://hdl.handle.net/10986/12063

id	okr-10986-12063
recordtype	oai_dc
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ACCOUNTING ADJUSTMENT COST ADJUSTMENT COSTS ADJUSTMENT MECHANISM ADVANCED COUNTRIES ADVERSE EFFECT ADVERSE IMPACT AGGREGATE CONSUMPTION AGGREGATE DEMAND ASSET PRICING AUTOREGRESSION BALANCE SHEET BALANCE SHEETS BANKING CRISES BANKRUPTCY BILATERAL EXCHANGE RATE BILATERAL EXCHANGE RATES BILATERAL TRADE BILATERAL TRADE DATA BUSINESS CYCLE CAPITAL GOODS CAPITAL INVESTMENT COMMON CURRENCY COMPETITIVENESS CONSUMER DURABLES CONSUMER EXPENDITURE CONSUMER EXPENDITURES CONSUMER PRICE CONSUMER PRICE INDEX CONSUMER SPENDING CONSUMERS CONSUMPTION DECISIONS CONSUMPTION EXPENDITURE CONSUMPTION EXPENDITURES CONSUMPTION GOODS CONTROL VARIABLES COST OF FINANCE COUNTRY OF ORIGIN CREDIT CONSTRAINTS CREDIT INTERMEDIATION DATA AVAILABILITY DEBT DEBT CRISIS DEPENDENT VARIABLE DEPRECIATION DEPRESSION DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DISCOUNTED VALUE DISPOSABLE INCOME DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRICES DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS ECONOMIC CRISIS ECONOMIC EFFECT ECONOMIC ENVIRONMENT ECONOMIC HISTORY ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC SHOCK EFFECTIVE EXCHANGE RATE ELASTICITY EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE VOLATILITY EXCHANGE RATES EXPENDITURE FUNCTION EXPORT COMPETITIVENESS EXPORTER EXPORTERS EXPORTS FEDERAL RESERVE FINANCIAL ASSETS FINANCIAL CONSTRAINTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL MARKET FINANCIAL MARKETS FIXED EFFECTS FORECASTING MODELS FOREIGN BANKS FOREIGN MARKETS FUTURE PRICES GDP GLOBALIZATION GRAVITY MODELS IMPLIED VOLATILITY IMPORT IMPORT PRICES IMPORTS INCOME INCOME EFFECT INCOME SHOCKS INCOME STREAM INCOMES INCREASING RETURNS INSURANCE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL TRADE INVENTORIES INVENTORY INVESTMENT DECISIONS INVESTMENT GOODS INVESTMENT PROJECTS INVESTMENT SPENDING ITC LACK OF CONFIDENCE LIQUIDITY LIQUIDITY CONSTRAINTS MACROECONOMIC CONDITIONS MACROECONOMIC VARIABLES MACROECONOMICS MARGINAL COST MARKET ACCESS MARKET ANALYSIS MARKET LEVELS MARKET RATE MONETARY ECONOMICS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKETS NOMINAL EXCHANGE RATE OPTIMAL PORTFOLIO OPTIMIZATION OUTPUT PERISHABLE GOODS PERMANENT INCOME POLITICAL ECONOMY PORTFOLIO PORTFOLIO CHOICE POVERTY REDUCTION RATE OF INVESTMENT REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE RATE RECESSION RELATIVE PRICE RELATIVE PRICES RETURN SALES SAVINGS SHORTFALL SIDE EFFECTS SOVEREIGN DEBT SPEED OF ADJUSTMENT SPREAD STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET STOCK MARKET CRASHES STOCK MARKET INDEX STOCK MARKET VOLATILITY STOCK PRICES STOCKS SUBSTITUTION SUBSTITUTION EFFECT SUNK COSTS SUPPLIERS SUPPLY CHAIN SUPPLY CHAINS TOTAL EXPORTS TOTAL IMPORTS TRADE EQUATIONS TRADE STATISTICS TRADING TRADING PARTNER TRADING PARTNERS TRANSACTION TRANSACTION COSTS TRANSITORY INCOME TREASURY TREASURY BILL TREASURY BILL RATE UNCERTAINTY UNEMPLOYMENT WEALTH WEALTH EFFECT WEALTH EFFECTS WORLD TRADE
spellingShingle	ACCOUNTING ADJUSTMENT COST ADJUSTMENT COSTS ADJUSTMENT MECHANISM ADVANCED COUNTRIES ADVERSE EFFECT ADVERSE IMPACT AGGREGATE CONSUMPTION AGGREGATE DEMAND ASSET PRICING AUTOREGRESSION BALANCE SHEET BALANCE SHEETS BANKING CRISES BANKRUPTCY BILATERAL EXCHANGE RATE BILATERAL EXCHANGE RATES BILATERAL TRADE BILATERAL TRADE DATA BUSINESS CYCLE CAPITAL GOODS CAPITAL INVESTMENT COMMON CURRENCY COMPETITIVENESS CONSUMER DURABLES CONSUMER EXPENDITURE CONSUMER EXPENDITURES CONSUMER PRICE CONSUMER PRICE INDEX CONSUMER SPENDING CONSUMERS CONSUMPTION DECISIONS CONSUMPTION EXPENDITURE CONSUMPTION EXPENDITURES CONSUMPTION GOODS CONTROL VARIABLES COST OF FINANCE COUNTRY OF ORIGIN CREDIT CONSTRAINTS CREDIT INTERMEDIATION DATA AVAILABILITY DEBT DEBT CRISIS DEPENDENT VARIABLE DEPRECIATION DEPRESSION DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DISCOUNTED VALUE DISPOSABLE INCOME DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRICES DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS ECONOMIC CRISIS ECONOMIC EFFECT ECONOMIC ENVIRONMENT ECONOMIC HISTORY ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC SHOCK EFFECTIVE EXCHANGE RATE ELASTICITY EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE VOLATILITY EXCHANGE RATES EXPENDITURE FUNCTION EXPORT COMPETITIVENESS EXPORTER EXPORTERS EXPORTS FEDERAL RESERVE FINANCIAL ASSETS FINANCIAL CONSTRAINTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL MARKET FINANCIAL MARKETS FIXED EFFECTS FORECASTING MODELS FOREIGN BANKS FOREIGN MARKETS FUTURE PRICES GDP GLOBALIZATION GRAVITY MODELS IMPLIED VOLATILITY IMPORT IMPORT PRICES IMPORTS INCOME INCOME EFFECT INCOME SHOCKS INCOME STREAM INCOMES INCREASING RETURNS INSURANCE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL TRADE INVENTORIES INVENTORY INVESTMENT DECISIONS INVESTMENT GOODS INVESTMENT PROJECTS INVESTMENT SPENDING ITC LACK OF CONFIDENCE LIQUIDITY LIQUIDITY CONSTRAINTS MACROECONOMIC CONDITIONS MACROECONOMIC VARIABLES MACROECONOMICS MARGINAL COST MARKET ACCESS MARKET ANALYSIS MARKET LEVELS MARKET RATE MONETARY ECONOMICS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKETS NOMINAL EXCHANGE RATE OPTIMAL PORTFOLIO OPTIMIZATION OUTPUT PERISHABLE GOODS PERMANENT INCOME POLITICAL ECONOMY PORTFOLIO PORTFOLIO CHOICE POVERTY REDUCTION RATE OF INVESTMENT REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE RATE RECESSION RELATIVE PRICE RELATIVE PRICES RETURN SALES SAVINGS SHORTFALL SIDE EFFECTS SOVEREIGN DEBT SPEED OF ADJUSTMENT SPREAD STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET STOCK MARKET CRASHES STOCK MARKET INDEX STOCK MARKET VOLATILITY STOCK PRICES STOCKS SUBSTITUTION SUBSTITUTION EFFECT SUNK COSTS SUPPLIERS SUPPLY CHAIN SUPPLY CHAINS TOTAL EXPORTS TOTAL IMPORTS TRADE EQUATIONS TRADE STATISTICS TRADING TRADING PARTNER TRADING PARTNERS TRANSACTION TRANSACTION COSTS TRANSITORY INCOME TREASURY TREASURY BILL TREASURY BILL RATE UNCERTAINTY UNEMPLOYMENT WEALTH WEALTH EFFECT WEALTH EFFECTS WORLD TRADE Taglioni, Daria Zavacka, Veronika Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters
relation	Policy Research Working Paper; No. 6226
description	The failure of trade economists to anticipate the extreme drop in trade post Lehman Brothers bankruptcy suggests that the behavior of trade in exceptional circumstances may still be poorly understood. This paper explores whether uncertainty shocks have explanatory power for movements in trade. VAR estimations on United States data suggest that domestic uncertainty is a strong predictor of movements in imports, but has little effect on exports. Guided by these results, the paper estimates a bilateral model with focus on the impact of importer uncertainty on foreign suppliers. It finds that there is a strong negative relationship between uncertainty and trade and that this relationship is non-linear. Uncertainty matters most when its levels are exceptionally high. The paper does not find evidence of learning from past turmoils, suggesting that prior experience with major uncertainty shocks does not reduce the effect on trade. In line with the expectations, the negative effect of uncertainty shocks on trade is higher for trade relationships more intensive in durable goods. Surprisingly, however, the effect of durability is non-linear. Supply chain considerations or the possibility that the relationships with the highest durability lead to important compositional effects may have a bearing on the results. The results are robust to excluding the post Lehman shock, suggesting that the trade response during the 2008-2009 crisis has been similar to past uncertainty events.
format	Publications & Research :: Policy Research Working Paper
author	Taglioni, Daria Zavacka, Veronika
author_facet	Taglioni, Daria Zavacka, Veronika
author_sort	Taglioni, Daria
title	Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters
title_short	Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters
title_full	Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters
title_fullStr	Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters
title_full_unstemmed	Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters
title_sort	innocent bystanders : how foreign uncertainty shocks harm exporters
publisher	World Bank, Washington, DC
publishDate	2013
url	http://documents.worldbank.org/curated/en/2012/10/16829842/innocent-bystanders-foreign-uncertainty-shocks-harm-exporters http://hdl.handle.net/10986/12063
_version_	1764418894238318592
spelling	okr-10986-120632021-04-23T14:02:59Z Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters Taglioni, Daria Zavacka, Veronika ACCOUNTING ADJUSTMENT COST ADJUSTMENT COSTS ADJUSTMENT MECHANISM ADVANCED COUNTRIES ADVERSE EFFECT ADVERSE IMPACT AGGREGATE CONSUMPTION AGGREGATE DEMAND ASSET PRICING AUTOREGRESSION BALANCE SHEET BALANCE SHEETS BANKING CRISES BANKRUPTCY BILATERAL EXCHANGE RATE BILATERAL EXCHANGE RATES BILATERAL TRADE BILATERAL TRADE DATA BUSINESS CYCLE CAPITAL GOODS CAPITAL INVESTMENT COMMON CURRENCY COMPETITIVENESS CONSUMER DURABLES CONSUMER EXPENDITURE CONSUMER EXPENDITURES CONSUMER PRICE CONSUMER PRICE INDEX CONSUMER SPENDING CONSUMERS CONSUMPTION DECISIONS CONSUMPTION EXPENDITURE CONSUMPTION EXPENDITURES CONSUMPTION GOODS CONTROL VARIABLES COST OF FINANCE COUNTRY OF ORIGIN CREDIT CONSTRAINTS CREDIT INTERMEDIATION DATA AVAILABILITY DEBT DEBT CRISIS DEPENDENT VARIABLE DEPRECIATION DEPRESSION DERIVATIVES DEVELOPING COUNTRIES DEVELOPMENT POLICY DISCOUNTED VALUE DISPOSABLE INCOME DOMESTIC DEMAND DOMESTIC MARKET DOMESTIC PRICES DUMMY VARIABLE DUMMY VARIABLES DURABLE DURABLE GOODS ECONOMIC CRISIS ECONOMIC EFFECT ECONOMIC ENVIRONMENT ECONOMIC HISTORY ECONOMIC POLICY ECONOMIC RESEARCH ECONOMIC SHOCK EFFECTIVE EXCHANGE RATE ELASTICITY EMERGING MARKETS EXCHANGE RATE EXCHANGE RATE VOLATILITY EXCHANGE RATES EXPENDITURE FUNCTION EXPORT COMPETITIVENESS EXPORTER EXPORTERS EXPORTS FEDERAL RESERVE FINANCIAL ASSETS FINANCIAL CONSTRAINTS FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DERIVATIVES FINANCIAL MARKET FINANCIAL MARKETS FIXED EFFECTS FORECASTING MODELS FOREIGN BANKS FOREIGN MARKETS FUTURE PRICES GDP GLOBALIZATION GRAVITY MODELS IMPLIED VOLATILITY IMPORT IMPORT PRICES IMPORTS INCOME INCOME EFFECT INCOME SHOCKS INCOME STREAM INCOMES INCREASING RETURNS INSURANCE INTEREST RATES INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL FINANCIAL STATISTICS INTERNATIONAL TRADE INVENTORIES INVENTORY INVESTMENT DECISIONS INVESTMENT GOODS INVESTMENT PROJECTS INVESTMENT SPENDING ITC LACK OF CONFIDENCE LIQUIDITY LIQUIDITY CONSTRAINTS MACROECONOMIC CONDITIONS MACROECONOMIC VARIABLES MACROECONOMICS MARGINAL COST MARKET ACCESS MARKET ANALYSIS MARKET LEVELS MARKET RATE MONETARY ECONOMICS MONETARY FUND MONETARY POLICY MONEY MARKET MONEY MARKET RATE MONEY MARKETS NOMINAL EXCHANGE RATE OPTIMAL PORTFOLIO OPTIMIZATION OUTPUT PERISHABLE GOODS PERMANENT INCOME POLITICAL ECONOMY PORTFOLIO PORTFOLIO CHOICE POVERTY REDUCTION RATE OF INVESTMENT REAL EFFECTIVE EXCHANGE RATE REAL EXCHANGE RATE RECESSION RELATIVE PRICE RELATIVE PRICES RETURN SALES SAVINGS SHORTFALL SIDE EFFECTS SOVEREIGN DEBT SPEED OF ADJUSTMENT SPREAD STANDARD DEVIATION STANDARD DEVIATIONS STOCK MARKET STOCK MARKET CRASHES STOCK MARKET INDEX STOCK MARKET VOLATILITY STOCK PRICES STOCKS SUBSTITUTION SUBSTITUTION EFFECT SUNK COSTS SUPPLIERS SUPPLY CHAIN SUPPLY CHAINS TOTAL EXPORTS TOTAL IMPORTS TRADE EQUATIONS TRADE STATISTICS TRADING TRADING PARTNER TRADING PARTNERS TRANSACTION TRANSACTION COSTS TRANSITORY INCOME TREASURY TREASURY BILL TREASURY BILL RATE UNCERTAINTY UNEMPLOYMENT WEALTH WEALTH EFFECT WEALTH EFFECTS WORLD TRADE The failure of trade economists to anticipate the extreme drop in trade post Lehman Brothers bankruptcy suggests that the behavior of trade in exceptional circumstances may still be poorly understood. This paper explores whether uncertainty shocks have explanatory power for movements in trade. VAR estimations on United States data suggest that domestic uncertainty is a strong predictor of movements in imports, but has little effect on exports. Guided by these results, the paper estimates a bilateral model with focus on the impact of importer uncertainty on foreign suppliers. It finds that there is a strong negative relationship between uncertainty and trade and that this relationship is non-linear. Uncertainty matters most when its levels are exceptionally high. The paper does not find evidence of learning from past turmoils, suggesting that prior experience with major uncertainty shocks does not reduce the effect on trade. In line with the expectations, the negative effect of uncertainty shocks on trade is higher for trade relationships more intensive in durable goods. Surprisingly, however, the effect of durability is non-linear. Supply chain considerations or the possibility that the relationships with the highest durability lead to important compositional effects may have a bearing on the results. The results are robust to excluding the post Lehman shock, suggesting that the trade response during the 2008-2009 crisis has been similar to past uncertainty events. 2013-01-03T17:49:40Z 2013-01-03T17:49:40Z 2012-10 http://documents.worldbank.org/curated/en/2012/10/16829842/innocent-bystanders-foreign-uncertainty-shocks-harm-exporters http://hdl.handle.net/10986/12063 English en_US Policy Research Working Paper; No. 6226 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research

Innocent Bystanders : How Foreign Uncertainty Shocks Harm Exporters

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