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North-South business cycles

  • Michael A. Kouparitsas

This paper shows that the economic activity of the industrial North and developing South move together - when the North is above its trend, the South tends to be above its trend. We refer to this phenomenon as the "North-South business cycle." The paper develops a quantitative general equilibrium model of North-South trade that captures many cyclical features of North-South trade and production data. In particular, the high volatility of North-South terms of trade, and strong comovement of Northern and Southern activity. On the basis of this model we argue that North-South business cycles emerge because shocks originating in the North are transmitted to the South through international goods and assets trade.

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Paper provided by Federal Reserve Bank of Chicago in its series Working Paper Series, Macroeconomic Issues with number WP-96-9.

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Date of creation: 1996
Date of revision:
Handle: RePEc:fip:fedhma:wp-96-9
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  1. Marianne Baxter & Mario J. Crucini, 1992. "Business cycles and the asset structure of foreign trade," Discussion Paper / Institute for Empirical Macroeconomics 59, Federal Reserve Bank of Minneapolis.
  2. Rudiger Dornbusch & Alejandro Werner, 1994. "Mexico: Stabilization, Reform, and No Growth," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 25(1), pages 253-316.
  3. Eduardo Borensztein & Carmen M. Reinhart, 1994. "The Macroeconomic Determinants of Commodity Prices," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 236-261, June.
  4. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  5. Shapiro, Matthew D, 1987. "Are Cyclical Fluctuations in Productivity Due More to Supply Shocks or Demand Shocks?," American Economic Review, American Economic Association, vol. 77(2), pages 118-24, May.
  6. Sansarricq, Frank, 1990. "North-South trade and Southern industrialization," Journal of Development Economics, Elsevier, vol. 34(1-2), pages 249-267, November.
  7. McIntosh, James, 1986. "North-south trade : Export-led Growth with Abundant Labour," Journal of Development Economics, Elsevier, vol. 24(1), pages 141-152, November.
  8. Findlay, Ronald, 1984. "Growth and development in trade models," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 4, pages 185-236 Elsevier.
  9. Michael A. Kouparitsas, 1997. "North-South terms of trade: an empirical investigation," Working Paper Series, Macroeconomic Issues WP-97-05, Federal Reserve Bank of Chicago.
  10. Moutos, Thomas & Vines, David, 1989. "The Simple Macroeconomics of North-South Interaction," American Economic Review, American Economic Association, vol. 79(2), pages 270-76, May.
  11. David K. Backus & Patrick J. Kehoe, 1991. "International evidence on the historical properties of business cycles," Staff Report 145, Federal Reserve Bank of Minneapolis.
  12. Matthew D. Shapiro, 1987. "Measuring Market Power in U.S. Industry," NBER Working Papers 2212, National Bureau of Economic Research, Inc.
  13. Whalley, John, 1984. "The North-South Debate and the Terms of Trade: An Applied General Equilibrium Approach," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 224-34, May.
  14. Baxter, Marianne, 1992. "Fiscal Policy, Specialization, and Trade in the Two-Sector Model: The Return of Ricardo?," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 713-44, August.
  15. Chichilnisky, Graciela, 1984. "North-South trade and exported-led policies," Journal of Development Economics, Elsevier, vol. 15(1-3), pages 131-160.
  16. Shoven,John B. & Whalley,John, 1992. "Applying General Equilibrium," Cambridge Books, Cambridge University Press, number 9780521319867.
  17. Burgstaller, A. & Saavedra-Rivano, N., 1984. "Capital mobility and growth in a North-South model," Journal of Development Economics, Elsevier, vol. 15(1-3), pages 213-237.
  18. Ramey, Valerie A, 1989. "Inventories as Factors of Production and Economic Fluctuations," American Economic Review, American Economic Association, vol. 79(3), pages 338-54, June.
  19. Michael A. Kouparitsas, 1996. "North-South financial integration and business cycles," Working Paper Series, Macroeconomic Issues WP-96-10, Federal Reserve Bank of Chicago.
  20. Chichilnisky, Graciela, 1981. "Terms of trade and domestic distribution : Export-led growth with abundant labour," Journal of Development Economics, Elsevier, vol. 8(2), pages 163-192, April.
  21. King, Robert G & Plosser, Charles I & Rebelo, Sergio T, 2002. "Production, Growth and Business Cycles: Technical Appendix," Computational Economics, Society for Computational Economics, vol. 20(1-2), pages 87-116, October.
  22. Baxter, M., 1994. "International Trade and Business Cycles," RCER Working Papers 390, University of Rochester - Center for Economic Research (RCER).
  23. McKibbin, Warwick J. & Sundberg, Mark W., 1993. "Implications for the Asia-Pacific region of coordination of macroeconomic policies in the OECD," Journal of Policy Modeling, Elsevier, vol. 15(1), pages 13-48, February.
  24. King, Robert G. & Plosser, Charles I. & Rebelo, Sergio T., 1988. "Production, growth and business cycles : I. The basic neoclassical model," Journal of Monetary Economics, Elsevier, vol. 21(2-3), pages 195-232.
  25. Baxter, Marianne, 1995. "International trade and business cycles," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 35, pages 1801-1864 Elsevier.
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