Can the standard international business cycle model explain the relation between trade and comovement? /
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Author / Creator: | Kose, M. Ayhan, author. |
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Imprint: | [Washington, D.C.] : International Monetary Fund, Research Dept., 2005. |
Description: | 1 online resource (38 pages) : illustrations |
Language: | English |
Series: | IMF working paper ; WP/05/204 IMF working paper ; WP/05/204. |
Subject: | |
Format: | E-Resource Book |
URL for this record: | http://pi.lib.uchicago.edu/1001/cat/bib/12498434 |
Other authors / contributors: | Yi, Kei-Mu, 1962- author. International Monetary Fund. Research Department, issuing body. |
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ISBN: | 1283511622 9781283511629 9781451907599 1451907591 1462340741 9781462340743 1452724938 9781452724935 9786613824073 6613824070 |
Notes: | Includes bibliographical references (pages 27-29). English. Print version record. |
Summary: | Recent empirical research finds that pairs of countries with stronger trade linkages tend to have more highly correlated business cycles. We assess whether the standard international business cycle framework can replicate this intuitive result. We employ a three-country model with transportation costs. We simulate the effects of increased goods market integration under two asset market structures, complete markets and international financial autarky. Our main finding is that under both asset market structures the model can generate stronger correlations for pairs of countries that trade more, but the increased correlation falls far short of the empirical findings. Even when we control for the fact that most country-pairs are small with respect to the rest of the world, the model continues to fall short. We also conduct additional simulations that allow for increased trade with the third country or increased TFP shock comovement to affect the country pair's business cycle comovement. These simulations are helpful in highlighting channels that could narrow the gap between the empirical findings and the predictions of the model. |
Other form: | Print version: Kose, M. Ayhan. Can the standard international business cycle model explain the relation between trade and comovement? [Washington, D.C.] : International Monetary Fund, Research Dept., 2005 |
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