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Inter-industry trade and business cycle dynamics

Author

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  • Lechthaler, Wolfgang
  • Mileva, Mariya

Abstract

Motivated by the increased importance of trade between industrialized and less-developed countries, we build a DSGE model featuring comparative advantage and inter-industry trade to analyze business cycle dynamics of industrialized countries. We show that productivity shocks lead to shifts in the relative demand of exporting and import-competing sectors, implying an important role for the mobility of workers across sectors. If workers are very mobile, then the aggregate implications of the two-sector model are similar to a one-sector model. If workers are very immobile, then the two-sector model features smaller responses in GDP to domestic shocks but larger responses to foreign shocks, implying larger comovement of GDP across countries.

Suggested Citation

  • Lechthaler, Wolfgang & Mileva, Mariya, 2016. "Inter-industry trade and business cycle dynamics," Kiel Working Papers 2041, Kiel Institute for the World Economy (IfW Kiel).
  • Handle: RePEc:zbw:ifwkwp:2041
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    international business cycles; inter-industry trade; comparative advantage; wage inequality;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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