Hecksher-Ohlin Business Cycles

Alejandro Cuñat, LSE and CEPR
Marco Maffezzoli, Università Bocconi and IGIER

Abstract

This paper introduces Heckscher–Ohlin trade features into a two-country dynamic stochastic general equilibrium model, and studies the international transmission of productivity shocks through trade in goods. This framework improves upon existing international real business cycle models in that it generates business cycle properties comparable with the empirical evidence regarding the terms of trade and the trade balance.