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International Transmission of the Business Cycle in a Multi-Sectoral Model

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Abstract

Multi-country models have not been very successful in replicating important features of the international transmission of business cycles. This paper extends previous work by introducing multiple sectors and traded intermediate inputs. Trade in intermediate goods represents approximately 60% of total trade and could significantly affect the main features of the international transmission of business cycles. In our model, imperfect substitution between domestic and foreign goods leads to cross-hauling in intermediate goods. As well, with more than a sector within each country there may be important inter-sectoral spillover effects that alter the transmission of shocks across countries. We show that these features of the model are important and can generate cross-correlations of output levels, employment and investment that are compatible with the data. Les modèles multi-pays n'ont pas réussi à reproduire les faits saillants de la transmission internationale du cycle économique. Dans ce texte nous incorporons des secteurs multiples et le commerce international des biens intermédiaires dans un modèle de la transmission du cycle. Les flux de biens intermédiaires constituent 60% du commerce international et pourraient avoir un impact important sur la transmission internationale des cycles. Dans le modèle, la substitution imparfaite entre les biens domestiques et étrangers mène à l'exportation et à l'importation simultanées des mêmes types de bien. Puisqu'il y a plus d'un secteur dans chaque pays, il y a des effets de débordement intersectoriels et internationaux qui peuvent modifier la transmission de chocs entre pays. Nous montrons que ces aspects de notre modèle ont des conséquences importantes et que le modèle peut engendrer des corrélations croisées des niveaux d'output, d'investissement et de consommation qui sont compatibles avec les données.

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  • Steve Ambler & Emanuela Cardia & Christian Zimmermann, 1998. "International Transmission of the Business Cycle in a Multi-Sectoral Model," Cahiers de recherche CREFE / CREFE Working Papers 60, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:60
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    More about this item

    Keywords

    Open economy macroeconomics; Business cycles; Intermediate goods; Sectoral shocks;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • D57 - Microeconomics - - General Equilibrium and Disequilibrium - - - Input-Output Tables and Analysis

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