Trade in Commodities and Business Cycle Volatility
-
David Kohn
-
Fernando Leibovici
-
Håkon Tretvoll
- American Economic Journal: Macroeconomics (Forthcoming)
Abstract
This paper studies the role of differences in the patterns of production and international trade on the business cycle volatility
of emerging and developed economies. We study a multi-sector
small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-
sectional and time-series differences across countries. Emerging
economies run trade surpluses in commodities and trade deficits in
manufactures, while sectoral trade
ows are balanced in developed
economies. We find that these differences amplify the response of
emerging economies to commodity price
uctuations. We show evidence consistent with this mechanism using cross-country data.
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