Citation

Discussion Paper Details

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Title: Heckscher-Ohlin Business Cycles

Author(s): Alejandro Cu�at and Marco Maffezzoli

Publication Date: April 2002

Keyword(s): Business Cycles, Heckscher-Ohlin, international trade and Productivity shocks

Programme Area(s): International Trade and Regional Economics

Abstract: This Paper introduces Heckscher-Ohlin trade features into a two-country DSGE model, and studies how productivity shocks propagate through trade in goods. In comparison with standard models, the business cycle properties of our framework are broadly compatible with the empirical evidence. Moreover, the model yields some novel predictions that distinguish it from the existing international real business cycle literature: (1) transitory shocks to productivity have permanent effects on country-level aggregate variables; (2) aggregate productivity shocks have relevant effects on the sectoral allocation of production factors; (3) under complete asset markets, the international correlation of consumption is lower than that of output; (4) the model?s predictions on the correlation of the terms of trade with the main aggregate variables are compatible with the data.

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Bibliographic Reference

Cu�at, A and Maffezzoli, M. 2002. 'Heckscher-Ohlin Business Cycles'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3382