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Trade, Inventories, and International Business Cycles

  • Virgiliu Midrigan

    (New York University)

  • Joe Kaboski

    (University of Notre Dame)

  • George Alessandria

    (Federal Reserve Bank of Philadelphia)

The large, persistent fluctuations in international trade that can not be explained in standard models by either changes in expenditures or relative prices are often attributed to trade wedges. We show that these trade wedges can reflect the decisions of importers to change their inventory holdings. We find that a two country model of international business cycles with an inventory management decision can generate trade flows and wedges consistent with the data. We find that modelling trade in this way alters the international transmission of business cycles. Specifically, real net exports become less procyclical and consumption becomes less correlated across countries.

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File URL: https://economicdynamics.org/meetpapers/2012/paper_762.pdf
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Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 762.

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Date of creation: 2012
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Handle: RePEc:red:sed012:762
Contact details of provider: Postal:
Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

Web page: http://www.EconomicDynamics.org/
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