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The extensive margin of trade and business cycle synchronization

Author

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  • Jean-Sébastien Pentecôte

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Jean-Christophe Poutineau

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

  • Fabien Rondeau

    () (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR1 - Université de Rennes 1 - UNIV-RENNES - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper underlines the negative influence of the extensive margin of international trade on business cycle convergence. In a two country DSGE model with flexible prices we show that an increase in the extensive margin of trade reduces the coupling of business cycles with regard to a trade increase affecting only the intensive margin. This phenomenon comes from a dampening in the terms of trade adjustment. For a group of eleven European countries between 1995 and 2007, the empirical application and that an increase of 1% in the extensive margin of bilateral trade reduces business cycle synchronisation between 0.328% and 0.247%, depending on wether we take into account the negative impact of the extensive margin on specialization.

Suggested Citation

  • Jean-Sébastien Pentecôte & Jean-Christophe Poutineau & Fabien Rondeau, 2011. "The extensive margin of trade and business cycle synchronization," Post-Print halshs-00603214, HAL.
  • Handle: RePEc:hal:journl:halshs-00603214
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00603214
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    Cited by:

    1. Iwona Maciejczyk-Bujnowicz, 2016. "Foreign trade and the theory of optimum currency areas. Implications for Poland," International Economics, University of Lodz, Faculty of Economics and Sociology, issue 13, pages 5-26, March.

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    Keywords

    Trade; business cycles; integration; specialization;

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