The Trade-Comovement Puzzle

Lukasz A. Drozd, Sergey Kolbin and Jaromir Nosal

American Economic Journal: Macroeconomics, 2021, vol. 13, issue 2, 78-120

Abstract: Standard 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-codes: E32 F14 F44 (search for similar items in EconPapers)
Date: 2021
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mac.20170386 (application/pdf)
https://doi.org/10.3886/E116889V1 (text/html)
https://www.aeaweb.org/doi/10.1257/mac.20170386.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/mac.20170386.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: The Trade-Comovement Puzzle (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmac:v:13:y:2021:i:2:p:78-120

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mac.20170386

Access Statistics for this article

American Economic Journal: Macroeconomics is currently edited by Simon Gilchrist

More articles in American Economic Journal: Macroeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().