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International Business Cycles

Paper Session

Sunday, Jan. 6, 2019 10:15 AM - 12:15 PM

Atlanta Marriott Marquis, L504
Hosted By: Econometric Society
  • Chair: Saroj Bhattarai, University of Texas-Austin

Recessions and Recoveries. Multinational Banks in the Business Cycle

Qingqing Cao
,
Michigan State University

Abstract

This paper studies the influence of multinational banks on the dynamics, depth and duration of business cycles. In our economy, multinational banks can transfer liquidity across borders through internal capital markets but are hindered in their allocation of liquidity by limited knowledge of local firms' assets. We find that, following domestic banking shocks, multinational banks can moderate the contractionary phase and the depth of the recession but slow down the subsequent recovery. A calibration to data on the Polish economy suggests that multinational banks reduce the depth of recessions by about 10%
but increase their duration by 5%.

Firm Knowledge and International Real Business Cycles

Joao Ayres
,
Inter-American Development Bank

Abstract

I incorporate knowledge flows within firms to a standard international real business cycle (IRBC) model. Firms produce knowledge in the headquarters, located in the home country, and it is used as an input in the production of goods and services by their subsidiaries, located both in the home country and abroad. I use data on the activity of US multinationals to calibrate the parameters of the production technology of the headquarters and subsidiaries. The calibrated model matches the return differentials between the activities of US multinationals in the United States and Europe, and implies that investment in knowledge is 1.4 times larger than investment in tangible capital. When allowing for stochastic productivity shocks, the model with firm knowledge accounts for a large fraction of the discrepancies between the standard IRBC model and the data: it generates higher cross-country correlations of fluctuations in corporate-sector value added and tangible investment, and lower volatility of fluctuations in net exports and tangible investment.

International Linkages and the Changing Nature of International Business Cycles

Wataru Miyamoto
,
University of Hong Kong
Thuy Lan Nguyen
,
Santa Clara University

Abstract

We quantify the effects of changes in international input-output linkages on the nature of business cycles. We build a multi-sector multi-country international business cycle model that matches the input-output structure within and across countries. We find that, in our 23 countries sample with manufacturing and non-manufacturing sectors, changes in the input-output linkages within and across borders between 1970 and 2007 causes a 21\% drop in output volatility in a median country and a small increase in cross-country output correlations. Our decomposition attributes about 11\% of the drop in output volatility to changes in international input-output linkages.

A Unified Model of International Business Cycles and Trade

Saroj Bhattarai
,
University of Texas-Austin
Konstantin Kucheryavyy
,
University of Tokyo

Abstract

We present a general, competitive open economy business cycles model with capital accumulation, trade in intermediate goods, production externalities in the intermediate and final goods sectors, and iceberg trade costs. Our main theoretical result shows that under appropriate parameter restrictions this model is isomorphic in terms of aggregate equilibrium predictions to dynamic versions of workhorse quantitative models of international trade: Eaton-Kortum, Krugman, and Melitz. The parameter restrictions apply on the overall scale of externalities, the split of externalities between factors of production, and the identity of sectors with externalities. Our quantitative exercise assesses whether various restricted versions of the general model — in forms they are typically considered in the literature — are able to resolve well-known aggregate empirical puzzles in the international business cycles literature. Our theoretical result on isomorphism between models provides insights on why dynamic versions of international trade models, even those that feature heterogeneous firms and costs of entry and exporting, fail to resolve these puzzles in so many instances. We then additionally explore in what directions they need to be amended to provide a better fit with the data. We show that an essential feature is negative capital externalities in intermediate goods production. We thus provide a unified theoretical and quantitative treatment of the international business cycles and trade literatures in a general dynamic framework.
JEL Classifications
  • F4 - Macroeconomic Aspects of International Trade and Finance
  • E3 - Prices, Business Fluctuations, and Cycles