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Federal Reserve Bank of St. Louis
Working Papers
Trade in Commodities and Business Cycle Volatility
David Kohn
Fernando Leibovici
Hakon Tretvoll
Abstract

This paper studies the role of the patterns of production and international trade on the higher business cycle volatility of emerging economies. We study a multi-sector small open economy in which firms produce and trade commodities and manufactures. We estimate the model to match key cross-sectional differences across countries: emerging economies run trade surpluses in commodities and trade deficits in manufactures, while sectoral trade flows are balanced in developed economies. We find that these differences amplify the response of emerging economies to fluctuations in commodity prices. We show evidence consistent with these findings using cross-country data.


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David Kohn & Fernando Leibovici & Hakon Tretvoll, Trade in Commodities and Business Cycle Volatility, Federal Reserve Bank of St. Louis, Working Papers 2018-5, 01 Mar 2018.
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Keywords: International business cycles; output volatility; emerging economies
DOI: 10.20955/wp.2018.005
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