Trade in Intermediate Inputs and Business Cycle Comovement
Do cross-border input linkages transmit shocks and synchronize business cycles across countries? I integrate input trade into a dynamic many country, multi-sector model and calibrate the model to match observed bilateral input-output linkages. With estimated productivity shocks, the model generates an aggregate trade-comovement correlation 30-40% as large as in data, and 50-75% as large for the goods producing sector. With independent shocks, the model accounts for one-quarter of the trade-comovement relationship for gross output of goods. However, shocks transmitted through input linkages do not synchronize value added. And contrary to conventional wisdom, input complementarity does not amplify value added comovement.
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