Capital Accumulation, Non-traded Goods and International Macroeconomic Dynamics with Heterogeneous Firms
This paper examines international business cycle transmission within a two-country dynamic stochastic general equilibrium model featuring an endogenously determined trade pattern. In contrast to existing literature, this model distinguishes between non-traded final goods and traded inputs. The model incorporates capital into the production of final goods and shows that shocks to final goods production are important in replicating the empirical regularities of imports, exports, the real exchange rate and their relationship to GDP. Endogenously determined labour supply and high asset market frictions are incorporated into the model to improve the model's ability to replicate labour market statistics and international co-movement.
Publisher: Department of Economics, University of Otago
Series number: 1002
Keywords: International Real Business Cycles; Non-traded Final Goods; Imperfect Competition; International Trade
Research Type: Discussion Paper