Data and Code for: After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade

Principal Investigator(s): View help for Principal Investigator(s) Felipe Benguria, University of Kentucky; Alan M. Taylor, University of California, Davis

Version: View help for Version V1

Name	File Type	Size	Last Modified
Empirical			06/20/2020 07:40:PM
Simulation			06/20/2020 07:40:PM
readme-openicpsr-118945.pdf	application/pdf	75.4 KB	06/20/2020 03:40:PM

Project Citation:

Benguria, Felipe, and Taylor, Alan M. Data and Code for: After the Panic: Are Financial Crises Demand or Supply Shocks? Evidence from International Trade. Nashville, TN: American Economic Association [publisher], 2020. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2020-11-23. https://doi.org/10.3886/E118945V1

Project Description

Summary:

Are financial crises a negative shock to aggregate demand or a negative shock to aggregate supply? This is a fundamental question for both macroeconomics researchers and those involved in real-time policymaking, and in both cases the question has become much more urgent in the aftermath of the recent financial crisis. Arguments for monetary and fiscal stimulus usually interpret such events as demand-side shortfalls. Conversely, arguments for tax cuts and structural reform often proceed from supply-side frictions. Resolving the question requires models capable of admitting both mechanisms, and empirical tests that can tell them apart. We develop a simple small open economy model, where a country is subject to deleveraging shocks that impose binding credit constraints on households and/or firms. These financial crisis events leave distinct statistical signatures in the time series record, and they divide sharply between each type of shock. Household deleveraging shocks are mainly demand shocks, contract imports, leave exports largely unchanged, and depreciate the real exchange rate. Firm deleveraging shocks are mainly supply shocks, contract exports, leave imports largely unchanged, and appreciate the real exchange rate. To test these predictions, we compile the largest possible crossed dataset of 200+ years of trade flows and almost 200 financial crises in a wide sample of countries. Empirical analysis reveals a clear picture: after a financial crisis event we find the dominant pattern to be that imports contract, exports hold steady or even rise, and the real exchange rate depreciates. On the basis of this macro-level evidence, financial crises are a negative shock to demand.

Funding Sources: The Bankard Fund for Political Economy at the University of Virginia

Scope of Project

Subject Terms: international trade; economic crises; exchange rates

JEL Classification:
      E44 Financial Markets and the Macroeconomy
      F32 Current Account Adjustment; Short-term Capital Movements
      F36 Financial Aspects of Economic Integration
      F41 Open Economy Macroeconomics
      F44 International Business Cycles
      G01 Financial Crises
      N10 Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: General, International, or Comparative
      N20 Economic History: Financial Markets and Institutions: General, International, or Comparative

Geographic Coverage: World

Time Period(s): 1816 – 2014

Data Type(s): event/transaction data; observational data; program source code

Related Publications

Download this project

Published Versions

V1 [2020-11-23]

Export Metadata

Dublin Core

DDI 2.5

Report a Problem

Found a serious problem with the data, such as disclosure risk or copyrighted content? Let us know.

This material is distributed exactly as it arrived from the data depositor. ICPSR has not checked or processed this material. Users should consult the investigator(s) if further information is desired.