Research

• • This paper offers a unified framework to analyze both short- and long-run trade dynamics in a consistent manner. It explains “the international elasticity puzzle”, a low trade elasticity against temporary shocks and a high trade elasticity against permanent shocks. The model in this paper extends the idea of export sunk costs and uncertainty to more general productivity shock processes by embedding the classical theory of “export hysteresis” into a continuous-time trade model with heterogeneous firms, and considers the effects of both aggregate and idiosyncratic productivity shocks. A sharp analytical characterization of the equilibrium elucidates the microfoundations of trade dynamics linking a static trade model with heterogeneous firms and an international macroeconomic model. Due to the sunk costs and uncertainty, firms do not change their export status against small temporary shocks. Aggregate productivity shocks and export sunk costs explain the elasticity puzzle because of the different adjustments on the extensive margin. If the productivity shocks are idiosyncratic, the economy is in a steady state, with individual firms moving around within a stationary distribution of productivities. Export hysteresis gives rise to a region of firm productivity where both exporters and non-exporters coexist given the same current productivity. The full model incorporates both types of shocks and offers realistic microfoundations of trade dynamics including simultaneous export entry and exit, an evolving productivity density of exporters, and the sluggish trade response to aggregate shocks. The framework contributes to the recent literature of partial differential equation models in macroeconomics, and can be applied to other topics such as the evolution of labor force or income distribution. 

  • Below are the animations of the dynamics of exporters' density and total exports in two hypothetical scenarios. 

1. Regime Switching  (Aggregate productivity jumps by 10 % in the initial quarter and stays at the new level)

2. Business Cycles  (Aggregate productivity follows a periodic function)

This paper considers a model of international trade with a domestic interfirm production network, which gives rise to the emergence of indirect exporters. These indirect exporters do not export but supplies goods and services to exporters, and hence, their value-added is exported indirectly. Using the data of Japanese interfirm transaction networks and international trade, the features of indirect exporters are investigated. More than half of firms are connected to foreign markets within two transaction links, and manufacturing and wholesale sectors account for the largest shares of both direct and indirect exporters. A strict ordering of many variables such as sales or employment exists in direct, 1st-degree indirect, 2nd-degree indirect, and non-exporters. A significant and positive propagation effect is confirmed. Shocks to exporters, whether positive or negative, propagate to their domestic suppliers and decay as they travel through supply chains. The 1st-degree indirect exporters receive 2~3% additional sales growth and 1~1.5% for 2nd-degree indirect exporters. If a firm supplies to an intense exporter, the magnitude is larger. This suggests the importance tracing indirect value-added exporters when considering the effect of trade liberalizations on firm size distributions or industry dynamics. 

Recent empirical evidence has revealed that firm age is one of the key determinants for firm growth, while another growing literature points out the importance of customer-supplier networks for firm growth. This paper investigates how the inter-firm transaction network evolves over firm life cycle, and its relationship with firm growth using large-scale firm network data in Japan. Old firms are large in size and well-connected compared to young firms. In particular, older firms are connected to other older firms exhibiting positive assortativity of age. Younger firms tend to add and drop links more frequently, and the stability of a transaction link increases with its duration of active relationship implying gradual learning of link-specific productivity over time. Moreover, firm’s sales growth is positively related with the expansion of transaction partners in various measures, conditional on firm age. This suggests that the observed relationship between firm age and firm growth may be due to the lifecycle pattern of building interfirm networks. 

• • This paper studies a number of features of transaction networks, firm sales growth, and buyer-supplier comovements of sales using a large-scale dataset on the Japanese interfirm transaction network. Significant network interdependence of sales growth is confirmed. By employing spatial autoregressive models, various propagation factors are estimated. In the baseline specification, the elasticity of average sales growth of suppliers is estimated to be 0.153 while that of customers is 0.257 for year 2012. In all years, the upstream propagation factor is larger than the downstream factor implying a difficulty of replacing an existing customer or adjusting to a demand shock. The manufacturing sector is characterized by a large degree of propagation. For both downstream and upstream propagations, manufacturing and wholesale sectors exhibit higher propagations factors while retail and service sectors exhibit lower propagation factors. The interdependence of intermediate physical inputs produced by other firms may generate an additional margin for the buyer-supplier comovements. Larger firms have more partners, and their degree of propagation is also higher. This result stresses an even larger impact of big firms for aggregate fluctuations in a granular production network. 

  • VoxEU Column in November 2016

Many countries have experienced multiple waves of infection during the COVID-19 pandemic. We propose a novel extension of the SIR model, a CSIR model, that can endogenously generate waves. In the model, cautious individuals take appropriate prevention measures against the virus and are not exposed to infection risk. Incautious individuals do not take any measures and are susceptible to the risk of infection. Depending on the size of incautious and susceptible population, some cautious people lower their guard and become incautious—thus susceptible to the virus. When the virus spreads sufficiently, the population reaches “temporary” herd immunity and infection subsides thereafter. Yet, the inflow from the cautious to the susceptible eventually expands the susceptible population and leads to the next wave. 

There is a large heterogeneity in health and macroeconomic outcomes across countries during the COVID-19 pandemic. We present a novel framework to understand the source of this heterogeneity, combining an estimated macro-epidemiological model and the idea of revealed preference. Our framework allows us to decompose the difference in health and macroeconomic outcomes across countries into two components: preference and constraint. We find that there is a large heterogeneity in both components across countries and that some countries such as Japan or Australia are willing to accept a large output loss to reduce the number of COVID-19 deaths.

Health and macroeconomic outcomes varied substantially across prefectures in Japan during the COVID-19 crisis. Using an estimated macro-epidemiological model as well as the idea of revealed preference, we compute the marginal rate of substitution (MRS) and the conditional trade-off curve between health and economic outcomes in each pre- fecture. We find that there is a large heterogeneity in the MRS as well as the location and shape of the conditional trade-off curve.

We present a series of quantitative analyses conducted from mid-May of 2021 to mid-June of 2021 that examined the effects of hosting the Tokyo 2020 Olympic and Paralympic Games on the spread of COVID-19 in Tokyo. Our ex-ante quantitative analyses pointed out that (i) the direct effects on the spread of COVID-19 of welcoming Games-related foreign visitors to Japan or allowing spectators in competition venues would be either limited or manageable, but (ii) a festive mood generated by the Games could greatly contribute to the spread of COVID-19 if it led to a decline in people’s willingness to take preventive actions against infection. Ex-post, the key results of our ex-ante analyses are broadly in line with available circumstantial evidence as well as ex-post consensus by public-health experts on how the Games affected the spread of COVID-19 in Tokyo.

We quantify the effects of the COVID-19 crisis on suicides in Japan using a time-series model relating the number of suicides to the unemployment rate as well as private-sector forecasts of the unemployment rate before the crisis. We find that (i) the COVID-19 crisis increased suicides in Japan by about 7,000 from March 2020 to April 2022, (ii) the increase in the unemployment rate can only account for one third of the excess suicides, (iii) the excess suicides are skewed towards younger generations and female, and (iv) lost years of life expectancy associated with the excess suicides are almost as large as those associated with COVID-19 deaths.

Health and macroeconomic outcomes varied substantially across prefectures in Japan during the COVID-19 crisis. Using an estimated macro-epidemiological model as well as the idea of revealed preference, we compute the marginal rate of substitution (MRS) and the conditional trade-off curve between health and economic outcomes in each prefecture. We find that there is a large heterogeneity in the MRS as well as the location and shape of the conditional trade-off curve.

We build a tractable SIR-macro-model with time-varying parameters and use it to explore various policy questions such as when to lift the state of emergency (SOE). An earlier departure from the SOE results in smaller output loss and more deaths in the short run. However, if the SOE is lifted too early, the number of new cases will surge and another SOE may need to be issued in the future, possibly resulting in both larger output loss and more deaths. That is, the tradeoff between output and infection that exists in the short run does not necessarily exist in the long run. Our model-based analysis—updated weekly since January 2021, frequently reported by media, and presented to policymakers on many occasions—has played a unique role in the policy response to the COVID-19 crisis in Japan.

A substantial fraction of international trade is facilitated by wholesalers, who enable manufacturers to indirectly export their products to foreign markets. Using large-scale Japanese interfirm transaction network data, this paper investigates the features of both direct and indirect exporters as well as international wholesalers. As predicted by a simple Melitz-type trade model with indirect export alternative, the sorting pattern is confirmed in our data, and the distributions of sales, in-degree (the number of suppliers), out-degree (the number of customers), and labor productivity are ordered for direct, indirect, and non-exporters in terms of first order stochastic dominance. Multinomial logit analysis is also consistent with the model, which assumes lower fixed cost and higher marginal cost for indirect exporters compared to direct exporters. We also find that in-degree raises the probability of direct exporting implying a cost sharing mechanism of firms with more suppliers. Out-degree raises the probability of exporting in general (both indirect and direct) implying a higher product appeal and broader demand base for firms who have more customers. 

Abstract coming soon