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

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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
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    File URL: http://www.otago.ac.nz/economics/research/otago077128.pdf
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    References listed on IDEAS

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    2. Moumita Basu & Ranjanendra Narayan Nag, 2018. "Capital Accumulation, Asset Price Dynamics and the Macroeconomy," Foreign Trade Review, , vol. 53(3), pages 127-155, August.

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    More about this item

    Keywords

    International Real Business Cycles; Non-traded Final Goods; Imperfect Competition; International Trade;
    All these keywords.

    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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