CES technology and comovement problem

Yoonseok Choi

Economics Bulletin, 2022, vol. 42, issue 1, 83 - 89

Abstract: One of the stylized facts in open economies is countercyclical trade balance. In this paper, I develop and estimate a canonical small open-economy (SOE) model that features the constant elasticity of substitution (CES) production function. The estimation result reveals that the model can deliver the countercyclical trade balance. This paper also finds that the model can produce a negative response of hours to a productivity shock, which is in line with early studies. These results are corroborated by business-cycles statistics based on actual data.

Keywords: CES technology; business cycles; comovement; countercyclical trade balance and hours (search for similar items in EconPapers)
JEL-codes: E2 E3 (search for similar items in EconPapers)
Date: 2022-02-20
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