Trade and the Global Recession
We develop a dynamic multi-country general equilibrium model to investigate forces acting on the global economy during the Great Recession and ensuing recovery. Our multi- sector framework accounts completely for countries' trade, investment, production, and relative GDPs in terms of different sets of shocks. Applying the model to 21 countries, we investigate the 29 percent drop in world trade during 2008-2009. Declines in the efficiency of investment in durables account for most of this trade collapse. Shocks to trade frictions, productivity, and demand play minor roles. In contrast, a combination of shocks contributed to the trade recovery during 2009-2011.
This paper was revised on July 13, 2015
Document Object Identifier (DOI): 10.3386/w16666
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