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Trade in Capital Goods and Investment-Specific Technical Change

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Abstract

This paper studies the role of trade in capital goods and investment-specific technical change in the determination of the cross-country correlation of output and the volatility of the terms of trade. The cross-country correlation of output for G7 countries ranges from 0.42 to 0.85 and the relative volatility of the terms of trade ranges from 1.24 to 6.06. The standard model with total factor productivity change and trade in final goods only generates a cross-country correlation of 0.05 and a volatility of 0.68. Models that allow trade in capital goods and investment-specific technical change produce a cross-country correlation of at least 0.47 and a volatility of at least 3.86.

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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah68.ps
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File URL: http://www.unites.uqam.ca/eco/CREFE/cahiers/cah68.pdf
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Bibliographic Info

Paper provided by CREFE, Université du Québec à Montréal in its series Cahiers de recherche CREFE / CREFE Working Papers with number 68.

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Length: 31 pages
Date of creation: Jan 1999
Date of revision:
Handle: RePEc:cre:crefwp:68

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Keywords: International real business cycles;

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  1. Canova, Fabio & Dellas, Harris, 1993. "Trade interdependence and the international business cycle," Journal of International Economics, Elsevier, vol. 34(1-2), pages 23-47, February.
  2. David K. Backus & Mario J. Crucini, 1998. "Oil Prices and the Terms of Trade," NBER Working Papers 6697, National Bureau of Economic Research, Inc.
  3. Greenwood, J. & Hercowitz, Z. & Krusell, P., 1995. "Long-Run Implications of Investment-Specific Technological Change," UWO Department of Economics Working Papers 9510, University of Western Ontario, Department of Economics.
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  20. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
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Citations

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Cited by:
  1. Parantap Basu & Christoph Thoenissen, 2009. "International business cycles and the relative price of investment goods," CDMA Working Paper Series 200905, Centre for Dynamic Macroeconomic Analysis.
  2. Christopher Erceg & Luca Guerrieri & Christopher Gust, 2006. "Trade Adjustment and the Composition of Trade," 2006 Meeting Papers 788, Society for Economic Dynamics.
  3. Peter N. Ireland, 2011. "Stochastic Growth in the United States and Euro Area," NBER Working Papers 16681, National Bureau of Economic Research, Inc.
  4. Mulraine, Millan L. B., 2006. "Real Exchange Rate Dynamics With Endogenous Distribution Costs," MPRA Paper 9, University Library of Munich, Germany.
  5. Johri, Alok & Letendre, Marc-André & Luo, Daqing, 2011. "Organizational capital and the international co-movement of investment," Journal of Macroeconomics, Elsevier, vol. 33(4), pages 511-523.
  6. Mulraine, Millan L. B., 2005. "Investment-Specific Technology Shocks in a Small Open Economy," MPRA Paper 7, University Library of Munich, Germany, revised Aug 2006.
  7. Maria Herrerias, 2010. "The causal relationship between equipment investment and infrastructures on economic growth in China," Frontiers of Economics in China, Springer, vol. 5(4), pages 509-526, December.
  8. Cook, David, 2002. "Market entry and international propagation of business cycles," Journal of International Economics, Elsevier, vol. 56(1), pages 155-175, January.
  9. Baxter, Marianne & Farr, Dorsey D., 2005. "Variable capital utilization and international business cycles," Journal of International Economics, Elsevier, vol. 65(2), pages 335-347, March.
  10. M. Herrerias & Vicente Orts, 2012. "Equipment investment, output and productivity in China," Empirical Economics, Springer, vol. 42(1), pages 181-207, February.

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