The extensive margin of trade and business cycle synchronization

Jean-Sébastien Pentecôte (), Jean-Christophe Poutineau () and Fabien Rondeau
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Jean-Christophe Poutineau: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: 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.

Keywords: Trade; business cycles; integration; specialization (search for similar items in EconPapers)
Date: 2011-05-26
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Citations: View citations in EconPapers (1)

Published in 15th international conference on macroeconomics analysis and international finance, May 2011, Rethymnon, Greece

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Working Paper: The extensive margin of trade and business cycle synchronization (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00603214

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