Trade in Intermediate Inputs and Business Cycle Comovement

56 Pages Posted: 21 Jul 2012

See all articles by Robert C. Johnson

Robert C. Johnson

University of Notre Dame - Department of Economics

Date Written: July 2012

Abstract

Does input trade synchronize business cycles across countries? I incorporate input trade into a dynamic multi-sector model with many countries, calibrate the model to match bilateral input-output data, and estimate trade-comovement regressions in simulated data. With correlated productivity shocks, the model yields high trade- comovement correlations for goods, but near-zero correlations for services and thus low aggregate correlations. With uncorrelated shocks, input trade generates more comovement in gross output than real value added. Goods comovement is higher when (a) the aggregate trade elasticity is low, (b) inputs are more substitutable than final goods, and (c) inputs are substitutable for primary factors.

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Suggested Citation

Johnson, Robert C., Trade in Intermediate Inputs and Business Cycle Comovement (July 2012). NBER Working Paper No. w18240. Available at SSRN: https://ssrn.com/abstract=2114866

Robert C. Johnson (Contact Author)

University of Notre Dame - Department of Economics ( email )

Notre Dame, IN 46556
United States

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