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Understanding the cross-country effects of U.S. technology shocks

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  • Miyamoto, Wataru
  • Nguyen, Thuy Lan

Abstract

Business cycles are substantially correlated across countries. Yet, most existing models are not able to generate substantial transmission through international trade. We show that the nature of such transmission depends fundamentally on the features determining the responsiveness of labor supply and labor demand to international relative prices. We augment a standard international macroeconomic model to incorporate three key features: a weak short-run wealth effect on labor supply, variable capital utilization, and imported intermediate inputs for production. This model can generate large and significant endogenous transmission of technology shocks through international trade. We demonstrate this by estimating the model using data for Canada and the United States with limited-information Bayesian methods. We find that this model can account for the substantial transmission of permanent U.S. technology shocks to Canadian aggregate variables such as output and hours, documented in a structural vector autoregression. Transmission through international trade is found to explain the majority of the business cycle comovement between the United States and Canada.

Suggested Citation

  • Miyamoto, Wataru & Nguyen, Thuy Lan, 2017. "Understanding the cross-country effects of U.S. technology shocks," Journal of International Economics, Elsevier, vol. 106(C), pages 143-164.
  • Handle: RePEc:eee:inecon:v:106:y:2017:i:c:p:143-164
    DOI: 10.1016/j.jinteco.2017.03.008
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    Cited by:

    1. Li, Wei & Luo, Yulei & Nie, Jun, 2017. "Elastic attention, risk sharing, and international comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 79(C), pages 1-20.
    2. Patrick Pintus & Yi Wen & Xiaochuan Xing, 2018. "International Credit Markets and Global Business Cycles," Working Papers halshs-01797029, HAL.
    3. Gars, Johan & Olovsson, Conny, 2017. "International business cycles: quantifying the effects of a world market for oil," Working Paper Series 340, Sveriges Riksbank (Central Bank of Sweden).
    4. Andrei A. Levchenko & Nitya Pandalai-Nayar, 2015. "TFP, News, and "Sentiments:" The International Transmission of Business Cycles," NBER Working Papers 21010, National Bureau of Economic Research, Inc.

    More about this item

    Keywords

    International transmission of business cycles; Structural analysis; International comovement; Bayesian; Impulse response matching;

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)

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