Trade, Inventories, and International Business Cycles
Joseph Kaboski and
George Alessandria ()
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Virgiliu Midrigan: New York University
No 762, 2012 Meeting Papers from Society for Economic Dynamics
The large, persistent fluctuations in international trade that can not be explained in standard models by either changes in expenditures or relative prices are often attributed to trade wedges. We show that these trade wedges can reflect the decisions of importers to change their inventory holdings. We find that a two country model of international business cycles with an inventory management decision can generate trade flows and wedges consistent with the data. We find that modelling trade in this way alters the international transmission of business cycles. Specifically, real net exports become less procyclical and consumption becomes less correlated across countries.
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed012:762
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