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Common trade exposure and business cycle comovement

Author

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  • Avila-Montealegre, Oscar
  • Mix, Carter

Abstract

Bilateral trade is considered a key driver of business-cycle transmission, as countries with higher bilateral trade have more correlated business cycles. We show, however, that when we account for the common trade exposure of a country pair to similar foreign cycles, the effect of bilateral trade on comovement falls sharply. Furthermore, common trade exposure is also a robust predictor of comovement. We conclude that trade is indeed a driver of business-cycle transmission, but often through common exposure to foreign cycles rather than just bilateral linkages. Finally, we consider the implications of these empirical results for the “trade-comovement puzzle.”

Suggested Citation

  • Avila-Montealegre, Oscar & Mix, Carter, 2024. "Common trade exposure and business cycle comovement," Journal of International Economics, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:inecon:v:152:y:2024:i:c:s0022199624001259
    DOI: 10.1016/j.jinteco.2024.103998
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    More about this item

    Keywords

    Trade; Business cycles; Open economy macroeconomics;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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