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Trading frictions and consumption-output comovement

Author

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  • Zhao, Yan
  • Guo, Shen
  • Liu, Xingfei

Abstract

The tradable sector has a lower consumption-output comovement than that in the nontradable sector. An artificial autarky generates identical comovements. Once the economy is open, however, the comovement in the nontradable sector becomes too low. The paper demonstrates that the intensity of labor adjustment across sectors is the main reason for the above results. In autarky model, investment adjustment is limited, so is labor and output; with free trade, investment and hence labor adjust to a greater size and output moves oppositive to consumption in the nontradable sector. Therefore, a model with trading frictions can account for the data.

Suggested Citation

  • Zhao, Yan & Guo, Shen & Liu, Xingfei, 2014. "Trading frictions and consumption-output comovement," Journal of Macroeconomics, Elsevier, vol. 42(C), pages 229-240.
    • Handle: RePEc:eee:jmacro:v:42:y:2014:i:c:p:229-240
    DOI: 10.1016/j.jmacro.2014.08.003
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    References listed on IDEAS

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    Cited by:

    1. Wei-Bin Zhang, 2017. "Multi-Regional Growth, Agglomeration and Land Values in a Generalized Heckscher-Ohlin Trade Model," Eastern European Business and Economics Journal, Eastern European Business and Economics Studies Centre, vol. 3(3), pages 270-305.
    2. Wei-Bin Zhang, 2016. "Gender-Differentiated Human Capital And Time Distributions In A Generalized Heckscher-Ohlin Model With Endogenous Physical Capital," Knowledge Horizons - Economics, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 8(2), pages 112-132, June.
    3. Wei-Bin Zhang, 2020. "Global Development, Trade, Human Capital, And Business Cycles," Oradea Journal of Business and Economics, University of Oradea, Faculty of Economics, vol. 5(special), pages 9-29, June.

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    More about this item

    Keywords

    Nontradable-goods; Consumption-output comovement; small open economy;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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