Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements
AbstractTrade on international financial markets allows people to insure country-specific risk and smooth consumption intertemporally. Equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment. The authors incorporate nontraded goods in the model and find that the implications for aggregate consumption, investment, and the trade balance are consistent with business-cycle properties of industrialized countries. However, the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level. Taste shocks produce price-quantity relationships more consistent with the data. Copyright 1995 by American Economic Association.
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Bibliographic InfoArticle provided by American Economic Association in its journal American Economic Review.
Volume (Year): 85 (1995)
Issue (Month): 1 (March)
Other versions of this item:
- Alan C. Stockman & Linda L. Tesar, 1991. "Tastes and technology in a two-country model of the business cycle: explaining international co-movements," Working Paper 9019, Federal Reserve Bank of Cleveland.
- Alan C. Stockman & Linda L. Tesar, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," NBER Working Papers 3566, National Bureau of Economic Research, Inc.
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