The extensive margin of trade and business cycle synchronization
Résumé
This paper underlines the negative influence of the extensive margin of international trade on business cycle convergence. In a two country DSGE model with flexible prices we show that an increase in the extensive margin of trade reduces the coupling of business cycles with regard to a trade increase affecting only the intensive margin. This phenomenon comes from a dampening in the terms of trade adjustment. For a group of eleven European countries between 1995 and 2007, the empirical application and that an increase of 1% in the extensive margin of bilateral trade reduces business cycle synchronisation between 0.328% and 0.247%, depending on wether we take into account the negative impact of the extensive margin on specialization.
Domaines
Economies et finances
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