WORKING PAPERS

Increasing Inventories: The Role of Delivery Times (2021) Job Market Paper

Abstract: U.S. manufacturing inventories have been increasing since 2005, reversing a declining trend that lasted for decades. The rise is observed across U.S. manufacturing industries and types of inventories. While the long term decline is well-understood as a consequence of improvements in transportation and information technology, the reversal of the trend has not yet been studied. This paper explores the role of increasing delivery times due to the creation of global supply chains. As foreign inputs become cheaper, firms choose to source more inputs from abroad, and in particular inputs from China which face long delivery times and frequent delays. This increases the firms' exposure to volatility in demand leading to a greater incentive to hold inventories. I build a dynamic trade model that features stochastic delivery times for different inputs in the presence of idiosyncratic demand risk. In this framework, firms face a tradeoff when sourcing inputs from different locations between their relative price and delivery times. I find that the initial decrease in delivery times explains 61% of the decline in inventories from 1992 to 2004, and the increase in reliance on inputs from China, which face longer and more volatile delivery times, explains 34% of the increase in inventories from 2005 to 2018.

Multistage Production under Trade Policy Uncertainty (2019)

Abstract: The recent increase in trade policy uncertainty affects a variety of industries. In particular, uncertainty is important for industries whose final good is produced in multiple stages that are located across different countries. These industries are the most concerned about trade policy and reduce investment during uncertainty periods. This paper analyzes trade policy uncertainty in a two-country dynamic, stochastic, general equilibrium model with multistage production where a firm’s decisions today depends on the future tariff path. Studies with one stage of production that measure the effect of trade policy find that uncertainty, as a second moment shock, does not play a big role in explaining the changes observed in the economy. Introducing multistage production, which generates a magnified response of trade to tariff changes, provides a better mechanism to analyze the role uncertainty in future tariffs plays in the economy.   

WORK IN PROGRESS

Supply Chain Risk and Inventories in the Business Cycle with Alessandro Ferrari