Can the Standard International Business Cycle Model Explain the Relation Between Trade and Comovement?
- Topics:
- Strategic Planning and Analysis
- Tags:
- Asset,
- Asset Management,
- Business Operations,
- IMF,
- International Business,
- Operational Planning,
- Transportation
- Source:
- International Monetary Fund
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Overview: The empirical research finds that pairs of countries with stronger trade linkages tend to have more highly correlated business cycles. The paper assesses whether the standard international business cycle framework can replicate this intuitive result. It employs a three-country model with transportation costs. It simulates the effects of increased goods market integration under two asset market structures, complete markets and international financial autarky. The 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.
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Format: PDF | Size: 559KB | Date: Oct 2005 | Pages: 40
