The extensive margin of trade and business cycle synchronization

Jean-Sébastien Pentecôte (1) , Jean-Christophe Poutineau (1) , Fabien Rondeau (1)

1 CREM - Centre de recherche en économie et management

This paper underlines the negative influence of the extensive margin of international trade on business cycle convergence. In a two country DSGE model with flexible prices we show that an increase in the extensive margin of trade reduces the coupling of business cycles with regard to a trade increase affecting only the intensive margin. This phenomenon comes from a dampening in the terms of trade adjustment. For a group of eleven European countries between 1995 and 2007, the empirical application and that an increase of 1% in the extensive margin of bilateral trade reduces business cycle synchronisation between 0.328% and 0.247%, depending on wether we take into account the negative impact of the extensive margin on specialization.

Mots clés: Trade; business cycles; integration; specialization

Domaines: Economies et finances

Jean-Sébastien Pentecôte, Jean-Christophe Poutineau, Fabien Rondeau. The extensive margin of trade and business cycle synchronization. 15th international conference on macroeconomics analysis and international finance, May 2011, Rethymnon, Greece. ⟨halshs-00603214⟩