Trade Shocks and Macroeconomic Fluctuations in Africa

CESifo Working Paper Series No. 203

46 Pages Posted: 18 Nov 1998

See all articles by M. Ayhan Kose

M. Ayhan Kose

World Bank; Brookings Institution; Centre for Economic Policy Research (CEPR); Australian National University (ANU)

Raymond G. Riezman

Aarhus University - Department of Economics and Business Economics; University of California, Santa Barbara (UCSB) - Department of Economics; University of Iowa - Henry B. Tippie College of Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); GEP; Aarhus University - School of Business and Social Sciences

Date Written: November 1999

Abstract

This paper examines the role of external shocks in explaining macroeconomic fluctuations in African countries. We construct a quantitative, stochastic, dynamic, multi-sector equilibrium model of a small open economy calibrated to represent a typical African economy. In our framework, external shocks consist of trade shocks, modeled as fluctuations in the prices of exported primary commodities, imported capital goods and intermediate inputs, and a financial shock, modeled as fluctuations in the world real interest rate. Our results indicate that while trade shocks account for roughly 45 percent of economic fluctuations in aggregate output, financial shocks play only a minor role. We also find that adverse trade shocks induce prolonged recessions.

Keywords: Trade shocks, dynamic stochastic quantitative trade model, African economies

JEL Classification: F41, E31, E32, D58, F11

Suggested Citation

Kose, M. Ayhan and Riezman, Raymond G., Trade Shocks and Macroeconomic Fluctuations in Africa (November 1999). CESifo Working Paper Series No. 203, Available at SSRN: https://ssrn.com/abstract=138009 or http://dx.doi.org/10.2139/ssrn.138009

M. Ayhan Kose (Contact Author)

World Bank ( email )

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Brookings Institution ( email )

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Centre for Economic Policy Research (CEPR) ( email )

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Australian National University (ANU) ( email )

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Raymond G. Riezman

Aarhus University - Department of Economics and Business Economics ( email )

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HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

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University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

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HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

CESifo (Center for Economic Studies and Ifo Institute)

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