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Capital Accumulation, Non-traded Goods and International Macroeconomic Dynamics with Heterogeneous Firms

Author

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  • Daniel Farhat

    () (Department of Economics, University of Otago)

Abstract

This paper examines international business cycle transmission within a two-country dynamic stochastic general equilibrium model featuring an endogenously determined trade pattern. In contrast to existing literature, this model distinguishes between non-traded final goods and traded inputs. The model incorporates capital into the production of final goods and shows that shocks to final goods production are important in replicating the empirical regularities of imports, exports, the real exchange rate and their relationship to GDP. Endogenously determined labour supply and high asset market frictions are incorporated into the model to improve the modelÕs ability to replicate labour market statistics and international co-movement.

Suggested Citation

  • Daniel Farhat, 2010. "Capital Accumulation, Non-traded Goods and International Macroeconomic Dynamics with Heterogeneous Firms," Working Papers 1002, University of Otago, Department of Economics, revised May 2010.
  • Handle: RePEc:otg:wpaper:1002
    as

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    File URL: http://www.otago.ac.nz/economics/research/otago077128.pdf
    File Function: First version, 2010
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    International Real Business Cycles; Non-traded Final Goods; Imperfect Competition; International Trade;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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