Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Trade-Comovement Puzzle†

The Trade-Comovement Puzzle† AbstractStandard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, pointing to three natural candidate resolutions: (i) financial market frictions, (ii) Greenwood-Hercowitz-Huffman preferences, and (iii) dynamic trade elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that while (i) and (ii) fall short of the data, (iii) goes a long way toward resolving the puzzle. (JEL E32, F14, F44) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Macroeconomics American Economic Association

The Trade-Comovement Puzzle†

The Trade-Comovement Puzzle†

American Economic Journal: Macroeconomics , Volume 13 (2) – Apr 1, 2021

Abstract

AbstractStandard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, pointing to three natural candidate resolutions: (i) financial market frictions, (ii) Greenwood-Hercowitz-Huffman preferences, and (iii) dynamic trade elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that while (i) and (ii) fall short of the data, (iii) goes a long way toward resolving the puzzle. (JEL E32, F14, F44)

Loading next page...
 
/lp/american-economic-association/the-trade-comovement-puzzle-LPBsQC3KdS
Publisher
American Economic Association
Copyright
Copyright © 2021 © American Economic Association
ISSN
1945-7715
DOI
10.1257/mac.20170386
Publisher site
See Article on Publisher Site

Abstract

AbstractStandard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, pointing to three natural candidate resolutions: (i) financial market frictions, (ii) Greenwood-Hercowitz-Huffman preferences, and (iii) dynamic trade elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that while (i) and (ii) fall short of the data, (iii) goes a long way toward resolving the puzzle. (JEL E32, F14, F44)

Journal

American Economic Journal: MacroeconomicsAmerican Economic Association

Published: Apr 1, 2021

There are no references for this article.