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For immediate release: February 2, 2009

Dallas Fed Report Spotlights Trade's Effect on Business Cycles

DALLAS—Trade of intermediate goods may be an important but largely unrecognized factor in the synchronization of business cycles between countries, according to the latest issue of the Federal Reserve Bank of Dallas' Economic Letter.

In "Ties that Bind: Bilateral Trade's Role in Synchronizing Business Cycles," research economist Ananth Ramanarayanan says intermediate goods—raw materials and parts used as inputs to production—may help explain why relatively small amounts of bilateral trade can result in large fluctuations in overall economic activity.

"Trade in inputs may provide the amplifying force that allows relatively small import and export volumes to impact production in large parts of an economy," he writes.


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