Comovement in GDP trends and cycles among trading partners

It has long been recognized that business cycle comovement is greater between countries that trade more intensively with one another. However, nations face shocks to both the cyclical and trend components of their GDP series. Contrary to the result for cyclical fluctuations, we find comovement of shocks to the trend component of real GDP is weaker among countries that trade more intensively with one another. We simulate changes in ten-year output growth correlations corresponding to the estimated effects of trade and show that the impact of trade on trend comovement is quantitatively more important than its effect on cyclical comovement. (C) 2014 Elsevier B.V. All rights reserved.