Net Exports, Consumption Volatility and International Real Business Cycle Models
Andrea Raffo ()
No 128, 2006 Meeting Papers from Society for Economic Dynamics
Conventional two-country RBC models interpret countercyclical net exports as reflecting, in large part, the dynamics of capital. I show that, quantitatively, theoretical economies rely on counterfactual terms of trade effects: trade fluctuations, on the contrary, are driven primarily by consumption smoothing, thus generating procyclical net trade in goods. I then consider a class of preferences that embeds home production in a reduced form: consumption volatility increases so that countercyclical net exports reflect primarily a strong relation between import of goods and income, as in the data. The major discrepancy between theory and data concerns the variability of international prices.
Keywords: Net exports; Home production; Consumption volatility. (search for similar items in EconPapers)
JEL-codes: E32 F32 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-int and nep-mac
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Working Paper: Net exports, consumption volatility, and international real business cycle models (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed006:128
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