They study a model economy in which international trade is subject to these frictions. When the authors calibrate their theory to the inventory levels and lumpiness of imports observed in the data, they find a large (20 percent) tariff equivalent of these frictions, mostly due to inventory carrying costs. These frictions have important consequences not only for the level of trade, but also for the dynamic response of imports and prices in the aftermath of large shocks. The authors focus on large devaluation episodes in six developing economies. The model predicts, consistent with the data, that desired inventory adjustment in response to a terms-of-trade and interest rate shock generates a short-term trade implosion, an immediate, temporary drop in the value and number of distinct varieties imported, as well as a slow increase in the retail price of imported goods.
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