NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Trade in Intermediate Inputs and Business Cycle Comovement

Robert C. Johnson

NBER Working Paper No. 18240
Issued in July 2012
NBER Program(s):   IFM   ITI

Does input trade synchronize business cycles across countries? I incorporate input trade into a dynamic multi-sector model with many countries, calibrate the model to match bilateral input-output data, and estimate trade-comovement regressions in simulated data. With correlated productivity shocks, the model yields high trade- comovement correlations for goods, but near-zero correlations for services and thus low aggregate correlations. With uncorrelated shocks, input trade generates more comovement in gross output than real value added. Goods comovement is higher when (a) the aggregate trade elasticity is low, (b) inputs are more substitutable than final goods, and (c) inputs are substitutable for primary factors.

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This paper was revised on June 8, 2014

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Document Object Identifier (DOI): 10.3386/w18240

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