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

  • Daniel Farhat


    (Department of Economics, University of Otago)

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    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.

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    File Function: First version, 2010
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    Paper provided by University of Otago, Department of Economics in its series Working Papers with number 1002.

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    Length: 29 pages
    Date of creation: May 2010
    Date of revision: May 2010
    Handle: RePEc:otg:wpaper:1002
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