Net exports, consumption volatility and international real business cycle models
By: Andrea Raffo
Contributors: Federal Reserve Bank of Kansas City. Research Division
Series: RWP -- 06-01; Research working paper (Federal Reserve Bank of Kansas City : Online) -- 06-01.
Publisher: Research Division, Federal Reserve Bank of Kansas City
Published: 2006
Place of publication: Kansas City [Mo.]
Language: eng
Format: [electronic resource] /
Description: Conventional two-country RBC models interpret countercyclical net exports as reflecting, in large part, the dynamics of capital. I show that, quantitatively, theoretical economies rely on counterfactual terms of trade effects: trade fluctuations, on the contrary, are driven primarily by consumption smoothing, thus generating procyclical net trade in goods. I then consider a class of preferences that embeds home production in a reduced form: consumption volatility increases so that countercyclical net exports reflect primarily a strong relation between income and imports, as in the data. The major discrepancy between theory and data concerns the variability of international prices.
Notes: Title from PDF file (viewed on Mar. 29, 2006).

"March 2006."

Includes bibliographical references.

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