Intro -- Contents -- I. INTRODUCTION -- II. SUDDEN STOPS AND RESERVES: SOME FACTS -- III. THE MODEL -- IV. APPLICATIONS -- V. EXTENSIONS -- VI. CONCLUDING COMMENTS -- APPENDIX: COMPUTATIONS -- REFERENCES.

Countries that trade more with each other exhibit higher business cycle correlation. This paper examines the mechanisms underlying this relationship using a large cross-country industry-level panel dataset of manufacturing production and trade. We show that sector pairs that experience more...