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Output volatility, composition of trade, and transmission of economic shocks across countries

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  • Ridwan Karim
  • Andrey Stoyanov

Abstract

In this paper we investigate how supply and demand shocks in one country affect output volatility in other countries. While the evidence for cross‐country transmission of demand shocks is mixed, we find that volatile supply in one country leads to larger imports and output volatility in other countries. As a result, the effect of trade openness on output volatility is highly heterogeneous across countries and depends on the composition of their trade. Those countries whose imports originate in economies with volatile supply experience a greater impact of trade on output volatility.

Suggested Citation

  • Ridwan Karim & Andrey Stoyanov, 2020. "Output volatility, composition of trade, and transmission of economic shocks across countries," Review of International Economics, Wiley Blackwell, vol. 28(3), pages 626-655, August.
    • Handle: RePEc:bla:reviec:v:28:y:2020:i:3:p:626-655
    DOI: 10.1111/roie.12465
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