International Business Cycles with Mutliple InputInvestments

This paper studies a two country model with economies disaggregated into traded and non-traded sectors and in which investment goods as in practice are produced by combining inputsfrom all sectors. The model also accounts for nontraded distribution services employed in retail-ing traded goods to consumers. The results show that the model with multiple input investmentsoutperforms the standard model in which sectoral output also serves as its capital. In particu-lar, it substantially improves (a) the movements of trade balance and relative prices, (b) withincountry comovements of sectoral and aggregate quantities, and (c) cross-country comovementsof output vis-à-vis consumption.[...]