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Business Cycles with Staggered Prices and International Trade in Intermediate Inputs

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  • Kevin X. D. Huang
  • Zheng Liu

Abstract

This paper proposes a unified theory to explain two observed patterns of international business cycle comovements: 1) The correlations in aggregate output and in consumption between OECD countries tend to be much higher than those between emerging market economies such as Latin America; and 2) Within each region, the output correlations are systematically greater than the consumption correlations. The model departs from the standard international business cycle model in that it incorporates a vertical production and trading chain, which is a feature of growing importance in modern world economy. The vertical chain embodies a powerful propagation mechanism that helps generate the observed magnitude and patterns of international correlations following monetary policy shocks.

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Paper provided by Department of Economics, Emory University (Atlanta) in its series Emory Economics with number 0308.

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Date of creation: May 2003
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Handle: RePEc:emo:wp2003:0308

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Cited by:
  1. Philipp Engler, 2011. "Monetary Policy and Unemployment in Open Economies," NCER Working Paper Series 77, National Centre for Econometric Research.
  2. Kevin X.D. Huang & Zheng Liu & Louis Phaneuf, 2002. "Why does the cyclical behavior of real wages change over time?," Research Working Paper RWP 02-09, Federal Reserve Bank of Kansas City.
  3. Costas Arkolakis & Ananth Ramanarayanan, 2008. "Vertical specialization and international business cycle synchronization," Globalization and Monetary Policy Institute Working Paper 21, Federal Reserve Bank of Dallas.
  4. Julian di Giovanni & Andrei A. Levchenko, 2010. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(2), pages 95-124, April.
  5. repec:hal:cesptp:halshs-00270284 is not listed on IDEAS
  6. Shi, Kang & Xu, Juanyi, 2010. "Intermediate goods trade and exchange rate pass-through," Journal of Macroeconomics, Elsevier, vol. 32(2), pages 571-583, June.
  7. Virgiliu Midrigan & Joe Kaboski & George Alessandria, 2012. "Trade, Inventories, and International Business Cycles," 2012 Meeting Papers 762, Society for Economic Dynamics.
  8. Cooke, Dudley, 2014. "Monetary shocks, exchange rates, and the extensive margin of exports," Journal of International Money and Finance, Elsevier, vol. 41(C), pages 128-145.
  9. Alexandre Dmitriev & Ivan Roberts, 2013. "International Business Cycles with Complete Markets," RBA Research Discussion Papers rdp2013-08, Reserve Bank of Australia.

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