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North-South business cycles

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  • Michael A. Kouparitsas

Abstract

This paper shows that the economic activity of the industrial North and developing South move together - when the North is above its trend, the South tends to be above its trend. We refer to this phenomenon as the "North-South business cycle." The paper develops a quantitative general equilibrium model of North-South trade that captures many cyclical features of North-South trade and production data. In particular, the high volatility of North-South terms of trade, and strong comovement of Northern and Southern activity. On the basis of this model we argue that North-South business cycles emerge because shocks originating in the North are transmitted to the South through international goods and assets trade.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series, Macroeconomic Issues with number WP-96-9.

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Date of creation: 1996
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Handle: RePEc:fip:fedhma:wp-96-9

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Keywords: Business cycles ; International trade ; Production (Economic theory);

References

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  1. David K. Backus & Patrick J. Kehoe, 1992. "International Evidence on the Historical Properties of Business Cycles," Working Papers 92-5, New York University, Leonard N. Stern School of Business, Department of Economics.
  2. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  3. Baxter, M. & Crucini, M., 1991. "Business Cycles and the Asset Structure of Foreign Trade," RCER Working Papers 316, University of Rochester - Center for Economic Research (RCER).
  4. Reinhart, Carmen & Borensztein, Eduardo, 1994. "The Macroeconomic Determinants of Commodity Prices," MPRA Paper 6979, University Library of Munich, Germany.
  5. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521266550, Fall.
  6. Matthew D. Shapiro, 1987. "Measuring Market Power in U.S. Industry," NBER Working Papers 2212, National Bureau of Economic Research, Inc.
  7. Moutos, Thomas & Vines, David, 1989. "The Simple Macroeconomics of North-South Interaction," American Economic Review, American Economic Association, vol. 79(2), pages 270-76, May.
  8. Chichilnisky, Graciela, 1984. "North-South trade and exported-led policies," Journal of Development Economics, Elsevier, vol. 15(1-3), pages 131-160.
  9. Marianne Baxter, 1995. "International Trade and Business Cycles," NBER Working Papers 5025, National Bureau of Economic Research, Inc.
  10. Baxter, Marianne, 1992. "Fiscal Policy, Specialization, and Trade in the Two-Sector Model: The Return of Ricardo?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 713-44, August.
  11. 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.
  12. Matthew D. Shapiro, 1987. "Are Cyclical Fluctuations in Productivity Due More to Supply Shocks or Demand Shocks?," NBER Working Papers 2147, National Bureau of Economic Research, Inc.
  13. Michael A. Kouparitsas, 1996. "North-South financial integration and business cycles," Working Paper Series, Macroeconomic Issues WP-96-10, Federal Reserve Bank of Chicago.
  14. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
  15. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
  16. Michael A. Kouparitsas, 1997. "North-South terms of trade: an empirical investigation," Working Paper Series, Macroeconomic Issues WP-97-05, Federal Reserve Bank of Chicago.
  17. Burgstaller, A. & Saavedra-Rivano, N., 1984. "Capital mobility and growth in a North-South model," Journal of Development Economics, Elsevier, vol. 15(1-3), pages 213-237.
  18. Sansarricq, Frank, 1990. "North-South trade and Southern industrialization," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 249-267, November.
  19. Findlay, Ronald, 1984. "Growth and development in trade models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 4, pages 185-236 Elsevier.
  20. Chichilnisky, Graciela, 1981. "Terms of trade and domestic distribution : Export-led growth with abundant labour," Journal of Development Economics, Elsevier, vol. 8(2), pages 163-192, April.
  21. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
  22. McIntosh, James, 1986. "North-south trade : Export-led Growth with Abundant Labour," Journal of Development Economics, Elsevier, vol. 24(1), pages 141-152, November.
  23. McKibbin, Warwick J. & Sundberg, Mark W., 1993. "Implications for the Asia-Pacific region of coordination of macroeconomic policies in the OECD," Journal of Policy Modeling, Elsevier, vol. 15(1), pages 13-48, February.
  24. Whalley, John, 1984. "The North-South Debate and the Terms of Trade: An Applied General Equilibrium Approach," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 224-34, May.
  25. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June.
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