Imported Capital Goods and Open Economy Business Cycles
Reinout De Bock
This paper examines the business cycle properties of capital goods trade in open economies. Capital good imports and exports are twice as volatile as investment. Equipment trade is asymmetric in that small countries are net importers. Countercyclical trade balances are associated with procyclical equipment imports rather than countercyclical exports. Both observations hold a fortiori for emerging economies. Real interest rates are acyclical in developed economies. In emerging economies real interest rates are countercyclical and there is a strong positive correlation of equipment imports with real interest rates. I then examine if these features are consistent with properly calibrated open economy business cycle models
International real business cycles; Small open economy
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