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Trade shocks and macroeconomic fluctuations in Africa

In: International Trade Agreements and Political Economy

Author

Listed:
  • M. Ayhan Kose

    (Graduate School of International Economics and Finance, Brandeis University, Waltham, MA 02454, USA)

  • Raymond Riezman

    (Department of Economics, University of Iowa, Iowa City, IA 52242, USA)

Abstract

This paper examines the role of external shocks in explaining macroeconomic fluctuations in African countries. We construct a quantitative, stochastic, dynamic, multi-sector equilibrium model of a small open economy calibrated to represent a "typical" African country. External shocks consist of trade shocks, modeled as fluctuations in the prices of exported primary commodities, imported capital goods and intermediate inputs, and a financial shock, modeled as fluctuations in the world real interest rate. Trade shocks account for roughly half of economic fluctuations in aggregate output. Moreover, adverse trade shocks cause prolonged recessions since they induce a significant decrease in aggregate investment

Suggested Citation

  • M. Ayhan Kose & Raymond Riezman, 2013. "Trade shocks and macroeconomic fluctuations in Africa," World Scientific Book Chapters, in: Raymond Riezman (ed.), International Trade Agreements and Political Economy, chapter 19, pages 369-394, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814390125_0019
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    JEL classification:

    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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