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Investment composition and international business cycles

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  • Oviedo, P. Marcelo
  • Singh, Rajesh

Abstract

This paper studies a two country model with traded and nontraded sectors, in which sector-specific capital goods, as in practice, are produced by combining inputs from all sectors. The model also includes nontraded distribution services employed in retailing traded goods to consumers. The results show that the model with capital goods comprising multisectoral inputs outperforms the standard model in which sectoral output also serves as its capital. In particular, it substantially improves (a) the movements of trade balance and relative prices; (b) within country comovements of sectoral and aggregate quantities; (c) cross-country comovements of output vis-à-vis consumption. The results change only marginally when distribution services are removed from the model.

Suggested Citation

  • Oviedo, P. Marcelo & Singh, Rajesh, 2013. "Investment composition and international business cycles," Journal of International Economics, Elsevier, vol. 89(1), pages 79-95.
    • Handle: RePEc:eee:inecon:v:89:y:2013:i:1:p:79-95
    DOI: 10.1016/j.jinteco.2012.04.006
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    More about this item

    Keywords

    International business cycles; Quantity anomaly; Distribution costs; Cross-country correlations;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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