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The Extensive Margin, Sectoral Shares and International Business Cycles

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Listed:
  • 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.

Suggested Citation

  • Michael B. Devereux & Viktoria Hnatkovska, 2011. "The Extensive Margin, Sectoral Shares and International Business Cycles," NBER Working Papers 17289, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:17289
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    Cited by:

    1. Hamano, Masashige, 2013. "The consumption-real exchange rate anomaly with extensive margins," Journal of International Money and Finance, Elsevier, vol. 36(C), pages 26-46.
    2. Devereux, Michael B. & Kollmann, Robert, 2012. "International Risk Sharing," MPRA Paper 70129, University Library of Munich, Germany.
    3. Ozdemir, Dicle, 2019. "Sectoral Business Cycle Asymmetries and Regime Shifts: Evidence from Turkey," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 26(2), December.
    4. Laura Povoledo, 2017. "Modelling the sectoral allocation of labour in open economy models," Canadian Journal of Economics, Canadian Economics Association, vol. 50(3), pages 685-710, August.
    5. Dogan, Aydan & Hjortsoe, Ida, 2020. "Understanding US export dynamics: does modelling the extensive margin of exports help?," Bank of England working papers 859, Bank of England.

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    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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