Risky Gravity

Paulo Santos Monteiro; Luciana Juvenal

Risky Gravity

Economics

Research output: Working paper › Discussion paper

Abstract

We consider the canonical trade model with heterogeneous firms, love for variety and trade costs, and integrate it in the consumption CAPM model. This yields a structural gravity equation that includes an additional factor related to risk premia. Empirical evidence based on firm-level data confirms the importance of cross-sectional heterogeneity in risk and time-varying risk premia to shape bilateral trade flows. The structural gravity model augmented to account for fluctuations in risk premia offers a compelling explanation for trade collapses during abrupt economic downturns.

Original language	English
Pages	49
Publication status	Published - 2021

Access to Document

https://ideas.repec.org/p/yor/yorken/21-02.html

European Economic Association Annual Congress 2021
Paulo Santos Monteiro (Invited speaker)
Aug 2021
Activity: Participating in or organising an event › Conference participation

Cite this

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title = "Risky Gravity",

abstract = "We consider the canonical trade model with heterogeneous firms, love for variety and trade costs, and integrate it in the consumption CAPM model. This yields a structural gravity equation that includes an additional factor related to risk premia. Empirical evidence based on firm-level data confirms the importance of cross-sectional heterogeneity in risk and time-varying risk premia to shape bilateral trade flows. The structural gravity model augmented to account for fluctuations in risk premia offers a compelling explanation for trade collapses during abrupt economic downturns.",

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AU - Juvenal, Luciana

PY - 2021

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AB - We consider the canonical trade model with heterogeneous firms, love for variety and trade costs, and integrate it in the consumption CAPM model. This yields a structural gravity equation that includes an additional factor related to risk premia. Empirical evidence based on firm-level data confirms the importance of cross-sectional heterogeneity in risk and time-varying risk premia to shape bilateral trade flows. The structural gravity model augmented to account for fluctuations in risk premia offers a compelling explanation for trade collapses during abrupt economic downturns.

M3 - Discussion paper

SP - 49

BT - Risky Gravity

ER -

Risky Gravity

Abstract

Access to Document

Activities

European Economic Association Annual Congress 2021

Cite this