Trade and Interdependence in International Networks

This paper studies the relationship between international trade and business cycle synchronization. Using data from OECD countries, I find substantive support for the role of trade in inputs, monopolistic pricing and the extensive margin of trade in synchronizing GDP fluctuations. Then, I build a model of international trade in intermediates with heterogeneous firms and monopolistic competition. Quantitative explorations show that the model is able to replicate 85% of the empirical relationship between trade in inputs and GDP comovement, making a significant step toward solving the "trade comovement puzzle". Finally, I clarify the role of the ingredients and show that markups and extensive margin adjustments create a link between domestic productivity and foreign technological shocks.