Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264801 
Year of Publication: 
2016
Series/Report no.: 
Working Paper No. 209
Publisher: 
Oesterreichische Nationalbank (OeNB), Vienna
Abstract: 
What is the relationship between international trade and business cycle synchronization? Using data from OECD countries, I find that trade in intermediate inputs plays a significant role in synchronizing GDP fluctuations across countries while trade in final goods is found insignificant. Motivated by this new fact, I build a model of international trade in intermediates that is able to replicate more than 70% of the empirical trade-comovement slope, making a significant step toward solving the "Trade Comovement Puzzle". The model relies on two key assumptions: (i) price distortions due to monopolistic competition and (ii) fluctuations in the mass of firms serving each country. The combination of those ingredients creates a link between domestic productivity and foreign shocks through trade linkages. Finally, I provide evidence for the importance of those elements in the link between foreign shocks and domestic GDP and test other predictions of the model.
Subjects: 
International Trade
International Business Cycle Comovement
Networks
Input- Output Linkages
JEL: 
F12
F17
F4
F62
L22
Document Type: 
Working Paper

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