Terms of Trade and Interest Rates Drive Small Economies' Business Cycles
Small developed economies experience fluctuations in their business cycles due to changes in terms of trade and foreign interest rates, not just productivity. These external factors can make consumption and investment more volatile and closely tied to economic output, while real net exports move in the opposite direction. This means that in these economies, people tend to spend more when the economy is doing well, and less when it's not, and that changes in trade balance are linked to these external shocks.