Working Paper: NBER ID: w17289
Authors: Michael B. Devereux; Viktoria Hnatkovska
Abstract: This paper documents some previously neglected features of sectoral shares at business cycle frequencies in OECD economies. In particular, we find that the nontraded sector share of output is as volatile as aggregate GDP, and that for most countries, the nontraded sector is distinctly countercyclical. While the standard international real business cycle model has difficulty in accounting for these properties of the data, an extended model which allows for sectoral adjustment along both the intensive and extensive margins does a much better job in replicating the volatilities and co-movements in the data. In addition, the model provides a closer match between theory and data with respect to the correlation between relative consumption growth and real exchange rate changes, a key measure of international risk-sharing.
Keywords: nontraded goods; sectoral shares
JEL Codes: F3; F4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| nontraded sector share of output (L39) | volatility of aggregate GDP (E20) |
| model's limitations (C52) | inability to replicate observed data (C59) |
| extended model's structure (C59) | patterns observed in international consumption risk sharing (F62) |
| extensive margin of adjustment (F16) | understanding of international business cycles (F44) |