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Heckscher-Ohlin Business Cycles

  • Alejandro Cuñat
  • Marco Maffezzoli

This paper introduces Heckscher-Ohlin trade features into a two-country DSGE model, and studies how productivity shocks propagate through trade in goods. In comparison with standard models, (i) transitory shocks to productivity have permanent effects on country-level aggregate variables; (ii) aggregate productivity shocks have relevant effects on the sectoral allocation of production factors; (iii) the business cycle properties of our model are broadly compatible with the empirical evidence; (iv) under complete asset markets, the international correlation of consumption is lower than that of output.

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Paper provided by IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University in its series Working Papers with number 210.

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Handle: RePEc:igi:igierp:210
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