International business cycle co-movement and vertical specialization reconsidered in multistage Bayesian DSGE model

Renminbi Appreciation and China's Industrial Upgrading

“…To do this, we constructed a two-country New Keynesian macroeconomic model. Three interconnected features were added to the model: the innovation possibility frontier following the approach taken by Acemoglu et al (2015); endogenous firm entry subject to sunk entry cost, which varies with the level of technology following the approach taken by Sutton (2012), and an input-output structure with a feedback loop to account for vertical trade in intermediate inputs (Wong and Eng, 2013). Although these features are not new separately, piecing them together provides a thorough macroeconomic lens that sheds light on China's economic reforms.…”

“…For the fi nal products manufactured in downstream industry using local and imported upstream components, they are either consumed or reinvested as materials for upstream production, both locally and abroad. In so doing, the model captures the "trade in intermediate inputs," which is necessary to account for international business cycles among countries bounded in the global value chain (Wong and Eng, 2013). Figure 2 schematically illustrates the model setting.…”

“…With market clearing condition Equation ( 6), we can feature "trade in intermediate inputs" in that fi rms import intermediates for processing and reexporting as intermediates for further fabrication. This feature is important for a macroeconomic model of the international business cycle with vertical specialization (Wong and Eng, 2013).…”

Monetary policy based on nonlinear quantity rule: Evidence from China

“…Following An and Schorfheide (2007) and Wong and Eng (2013), we use the Bayesian estimation technique to estimate the loglinearized version of the model presented in the previous section. By using a general equilibrium approach that addresses the identification problems of reduced-form models, the Bayesian estimation technique gives us several advantages over the competing techniques.…”

International Trade Finance and the Cost Channel of Monetary Policy in Open Economies

“…6 The paper also builds on ideas developed in the literature on vertical specialization and multiple stage production. Huang and Liu (2007), Huang and Liu (2001) and Wong and Eng (2012) are among the many papers that have used these features to explain various empirical stylized facts that standard models have difficulty in accounting for. This paper will build a model that would allow multiple stage trade intermediation to act as an amplification mechanism for shocks due to borrowing constraints.…”