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Net Exports, Consumption Volatility and International Real Business Cycle Models

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  • Andrea Raffo

    ()
    (Economic Research Federal Reserve Bank, Kansas City)

Abstract

Conventional two-country RBC models interpret countercyclical net exports as reflecting, in large part, the dynamics of capital. I show that, quantitatively, theoretical economies rely on counterfactual terms of trade effects: trade fluctuations, on the contrary, are driven primarily by consumption smoothing, thus generating procyclical net trade in goods. I then consider a class of preferences that embeds home production in a reduced form: consumption volatility increases so that countercyclical net exports reflect primarily a strong relation between import of goods and income, as in the data. The major discrepancy between theory and data concerns the variability of international prices.

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Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number 128.

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Date of creation: 03 Dec 2006
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Handle: RePEc:red:sed006:128

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Keywords: Net exports; Home production; Consumption volatility.;

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Cited by:
  1. Keisuke Otsu, 2008. "A Neoclassical Analysis of The Korean Crisis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(2), pages 449-471, April.
  2. Jaime Guajardo, 2008. "Business Cycles in Small Developed Economies," IMF Working Papers 08/86, International Monetary Fund.
  3. Charles Engel & Jian Wang, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization and Monetary Policy Institute Working Paper 03, Federal Reserve Bank of Dallas.
  4. Ippei Fujiwara, 2013. "The global impact of Chinese growth," Asia Pacific Economic Papers 399, Australia-Japan Research Centre, Crawford School of Public Policy, The Australian National University.
  5. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc.
  6. Zeno Enders & Gernot J. Mueller, 2006. "S-Curve Redux: On the International Transmission of Technology Shocks," Economics Working Papers ECO2006/36, European University Institute.

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