Business Cycle Accounting of Trade Barriers in a Small Open Economy

27 Pages Posted: 21 Nov 2016

See all articles by Mohammad Hossein Rahmati

Mohammad Hossein Rahmati

Sharif University of Technology

Ali Karimirad

Arizona State University (ASU), Department of Economics, Students

Seyed Ali Madanizadeh

Sharif University of Technology

Date Written: November 19, 2016

Abstract

To what extent a short-term decline in the output of a small open economy can be explained by trade barriers? To answer, we extend the standard four-wedge Business Cycle Accounting method of Chari et al. (2007) to a five-wedge small open economy model by adding a time-varying wedge that resembles trade frictions related to the barriers on imports. We show that international sanctions against Iranian economy is a good example of trade barriers, therefore we apply this method to Iran data for recession of 2012-13. The results indicate that efficiency and investment wedges account for most of the fluctuations during the sanction period, and trade barriers had little explanatory power.

Keywords: Trade barriers, Business Cycle Accounting, Small open economy, International sanctions

Suggested Citation

Rahmati, Mohammad Hossein and Karimirad, Ali and Madanizadeh, Seyed Ali, Business Cycle Accounting of Trade Barriers in a Small Open Economy (November 19, 2016). Available at SSRN: https://ssrn.com/abstract=2872946 or http://dx.doi.org/10.2139/ssrn.2872946

Mohammad Hossein Rahmati (Contact Author)

Sharif University of Technology ( email )

Graduate School of Business and Economics
Sharif University of Technology
Tehran
Iran
+98-21-6604-9195 (Phone)

HOME PAGE: http://gsme.sharif.edu/~rahmati/

Ali Karimirad

Arizona State University (ASU), Department of Economics, Students ( email )

AZ
United States

Seyed Ali Madanizadeh

Sharif University of Technology ( email )

Tehran
Iran

HOME PAGE: http://gsme.sharif.edu/~madanizadeh/

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