International Linkages and the Changing Nature of International Business Cycles

We quantify the effects of changes in international input-output linkages on the nature of business cycles. We build a multi-sector multi-country international business cycle model that matches the input-output structure within and across countries. We find that, in our 23 countries sample with manufacturing and non-manufacturing sectors, changes in the international input-output linkages between 1970 and 2007 causes a 15% drop in output volatility in a median country, but the effects are heterogeneous across countries. Changing international linkages tend to stabilize output in most countries, while leading to a higher risk of a global recession.