Trade In Intermediate Inputs And Business Cycle Comovement
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Trade in Intermediate Inputs and Business Cycle Comovement
Do cross-border input linkages transmit shocks and synchronize business cycles across countries? I integrate input trade into a dynamic many country, multi-sector model and calibrate the model to match observed bilateral input-output linkages. With estimated productivity shocks, the model generates an aggregate trade-comovement correlation 30-40% as large as in data, and 50-75% as large for the goods producing sector. With independent shocks, the model accounts for one-quarter of the trade-comovement relationship for gross output of goods. However, shocks transmitted through input linkages do not synchronize value added. And contrary to conventional wisdom, input complementarity does not amplify value added comovement.
Trade Linkages and International Business Cycle Comovement: Evidence from Korean Industry Data
Author: Dongyeol Lee
language: en
Publisher: International Monetary Fund
Release Date: 2019-05-24
Through the 2000s, Korea’s export and import linkages to advanced and emerging markets increased significantly. At the same time, the correlation of output growth between Korea and these economies rose. This paper investigates the nature of the link between trade linkages and the comovement of international business cycles (BC) using Korean industry-level domestic and international input-output data. The results suggest that, at the industry-level, higher export linkages lead to a larger positive GDP growth comovement, while higher import linkages lead to higher negative employment growth comovement. Furthermore, the decomposition of aggregate BC comovement shows that the increase in trade with China has contributed the most to aggregate BC comovement, while the impact of trade linkages on BC comovement is propagated domestically via vertical linkages. These findings suggest that the Korean economy can be significantly affected by a few countries that are highly linked through trade to Korea and/or a few industries that are highly interconnected to other industries.
Demand for Value Added and Value-Added Exchange Rates
Author: Mr.Rudolfs Bems
language: en
Publisher: International Monetary Fund
Release Date: 2015-09-08
We examine the role of cross-border input linkages in governing how international relative price changes influence demand for domestic value added. We define a novel value-added real effective exchange rate (REER), which aggregates bilateral value-added price changes, and link this REER to demand for value added. Input linkages enable countries to gain competitiveness following depreciations by supply chain partners, and hence counterbalance beggar-thy-neighbor effects. Cross-country differences in input linkages also imply that the elasticity of demand for value added is country specific. Using global input-output data, we demonstrate these conceptual insights are quantitatively important and compute historical value-added REERs.