Chapter 35 International trade and business cycles This chapter discusses the salient features of international trade and business cycles and summarizes the contributions of a particular branch of the literature on open economy macroeconomics. Becasue many macroeconomic time series are nonstationary the computation of moments requires that the data be transformed to remove the nonstationarity. A commonly used transformation is the linear filter advocated by Hodrick and Prescott. The important properties of this filter are the following: (1) the filter will render stationary any time series that is integrated of order four or less and (2) when applied to quarterly data the filter acts as a reasonable approximation to a high pass filter that passes the cycles of frequency eight years or less with the customary value of 1600 for the smoothing parameter. Recently Baxter and King (1994) proposed a method for measuring business cycle components of models and data through the application of an approximate band pass filter. The chapter also analyzes the effects of shocks to government spending and tax rates and reviews the literature on multi good models of international business cycle.