The Extensive Margin, Sectoral Shares and International Business Cycles

32 Pages Posted: 12 Aug 2011 Last revised: 30 Mar 2023

See all articles by Michael B. Devereux

Michael B. Devereux

University of British Columbia (UBC) - Department of Economics; Centre for Economic Policy Research (CEPR)

Viktoria V. Hnatkovska

University of British Columbia (UBC) - Department of Economics

Date Written: August 2011

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

Devereux, Michael B. and Hnatkovska, Viktoria V., The Extensive Margin, Sectoral Shares and International Business Cycles (August 2011). NBER Working Paper No. w17289, Available at SSRN: https://ssrn.com/abstract=1908577

Michael B. Devereux (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

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Viktoria V. Hnatkovska

University of British Columbia (UBC) - Department of Economics ( email )

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Vancouver, BC V6T 1Z1
Canada

HOME PAGE: http://faculty.arts.ubc.ca/vhnatkovska/

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