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Business cycles with staggered prices and international trade in intermediate inputs

  • Huang, Kevin X.D.
  • Liu, Zheng

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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Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 54 (2007)
Issue (Month): 4 (May)
Pages: 1271-1289

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Handle: RePEc:eee:moneco:v:54:y:2007:i:4:p:1271-1289
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505566

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