July 3, 2019

DIW Seminar on Macroeconomics and Financial Markets

Distance(s) and the volatility of international trade(s)

Date

July 3, 2019
12:00-13:15

Location

Joan Robinson Room
DIW Berlin
Room 3.3.002a
Mohrenstraße 58
10117 Berlin

Speaker

Cedric Tille, Graduate Institute Geneva

Abstract:
Does distance matter for the volatility of international real and financial transactions? We show that it does, in addition to its well-established relevance for the level of trade. A simple model of trade with endogenous markups shows that demand shocks have a larger impact on trade between more distant countries. We test this implication in two steps, relying on a broad range of real and financial transactions measures, as well as several different metrics of distance (physical, linguistic, and internet). We first show that during the Great Trade Collapse of 2007-09 international transactions fell more between countries that are more distant along the various metrics, and find that the different distance measures magnify each other’s respective impacts. We then focus on a longer panel analysis of trade in goods and show that trade is more volatile between more distant countries, with again a magnification pattern across metrics of distance.

Speaker

Cedric Tille, The Graduate Institute Geneva

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