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International Business Cycles and Exchange Rates

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  • Zimmermann, Christian

Abstract

Models of international real business cycles are not able to account for the high volatility of exports, imports, the trade balance, and the terms of trade. By introducing exogenous exchange rate movements in addition to standard technological shocks, the model presented here comes much closer to replicating the relatively high volatility observed in the data while also improving other moments. Copyright 1999 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 7 (1999)
Issue (Month): 4 (November)
Pages: 682-98

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Handle: RePEc:bla:reviec:v:7:y:1999:i:4:p:682-98

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References

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  1. Christian Zimmermann, 1995. "International Real Business Cycles among Heterogeneous Countries," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 38, CREFE, Université du Québec à Montréal.
  2. Meese, Richard, 1990. "Currency Fluctuations in the Post-Bretton Woods Era," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 4(1), pages 117-34, Winter.
  3. Meese, Richard A & Rose, Andrew K, 1990. "Nonlinear, Nonparametric, Nonessential Exchange Rate Estimation," American Economic Review, American Economic Association, American Economic Association, vol. 80(2), pages 192-96, May.
  4. Robert E. Cumby & Maurice Obstfeld, 1984. "International Interest Rate and Price Level Linkages under Flexible Exchange Rates: A Review of Recent Evidence," NBER Chapters, in: Exchange Rate Theory and Practice, pages 121-152 National Bureau of Economic Research, Inc.
  5. Stockman, A.C., 1988. "Real Exchange Rate Variability Under Pegged And Floating Nominal Exchange Rate Systems: An Equilibrium Theory," RCER Working Papers 128, University of Rochester - Center for Economic Research (RCER).
  6. Hodrick, Robert J & Prescott, Edward C, 1997. "Postwar U.S. Business Cycles: An Empirical Investigation," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 29(1), pages 1-16, February.
  7. Boughton, James M., 1987. "Tests of the performance of reduced-form exchange rate models," Journal of International Economics, Elsevier, Elsevier, vol. 23(1-2), pages 41-56, August.
  8. Christian Zimmermann, 1994. "Technology Innovations and the Volatility of Output: An International Perspective," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 34, CREFE, Université du Québec à Montréal.
  9. Baxter, M. & Stockman, A.C., 1988. "Business Cycles And The Exchange Rate System: Some International Evidence," RCER Working Papers 140, University of Rochester - Center for Economic Research (RCER).
  10. Finn, Mary G., 1986. "Forecasting the exchange rate: A monetary or random walk phenomenon?," Journal of International Money and Finance, Elsevier, Elsevier, vol. 5(2), pages 181-193, June.
  11. David Backus, 1984. "Empirical Models of the Exchange Rate: Separating the Wheat from the Chaff," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 17(4), pages 824-46, November.
  12. John Whalley, 1984. "Trade Liberalization among Major World Trading Areas," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262231204, December.
  13. David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report, Federal Reserve Bank of Minneapolis 146, Federal Reserve Bank of Minneapolis.
  14. Gerlach, H M Stefan, 1988. "World Business Cycles under Fixed and Flexible Exchange Rates," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 20(4), pages 621-32, November.
  15. Baxter, Marianne & Stockman, Alan C., 1989. "Business cycles and the exchange-rate regime : Some international evidence," Journal of Monetary Economics, Elsevier, Elsevier, vol. 23(3), pages 377-400, May.
  16. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, American Economic Association, vol. 84(1), pages 84-103, March.
  17. CARMICHAEL, Benoît, 1994. "Exchange Rate Determination in a Two-Country Model with Liquidity Shocks," Cahiers de recherche, Université Laval - Département d'économique 9410, Université Laval - Département d'économique.
  18. Flood, Robert P., 1987. "Comments on speculation and the volatility of foreign currency exchange rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 26(1), pages 57-62, January.
  19. Singleton, Kenneth, 1987. "Speculation and the volatility of foreign currency exchange rates," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 26(1), pages 9-56, January.
  20. Don E. Schlagenhauf & Jeffry M. Wrase, 1992. "A monetary, open-economy model with capital mobility," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 67, Federal Reserve Bank of Minneapolis.
  21. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, Econometric Society, vol. 50(6), pages 1345-70, November.
  22. Schlagenhauf, Don E. & Wrase, Jeffrey M., 1995. "Liquidity and real activity in a simple open economy model," Journal of Monetary Economics, Elsevier, Elsevier, vol. 35(3), pages 431-461, June.
  23. Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, Elsevier, vol. 14(1-2), pages 3-24, February.
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Citations

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Cited by:
  1. Jian Wang & Charles Engel, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," 2008 Meeting Papers 210, Society for Economic Dynamics.
  2. Daniel Farhat, 2010. "Capital Accumulation, Non-traded Goods and International Macroeconomic Dynamics with Heterogeneous Firms," Working Papers, University of Otago, Department of Economics 1002, University of Otago, Department of Economics, revised May 2010.
  3. Christian Zimmermann, 1995. "International Real Business Cycles among Heterogeneous Countries," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 38, CREFE, Université du Québec à Montréal.
  4. Alan C. Stockman, 1998. "New evidence connecting exchange rates to business cycles," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 73-89.
  5. Baum, Christopher F. & Caglayan, Mustafa, 2010. "On the sensitivity of the volume and volatility of bilateral trade flows to exchange rate uncertainty," Journal of International Money and Finance, Elsevier, Elsevier, vol. 29(1), pages 79-93, February.
  6. Charles Engel & Jian Wang, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 03, Federal Reserve Bank of Dallas.
  7. Christian Zimmermann, 1995. "International Trade over the Business Cycle: Stylized Facts and Remaining Puzzles," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 37, CREFE, Université du Québec à Montréal, revised Aug 1997.
  8. Christian Zimmermann, 1996. "Business Cycles and Exchange Rate Regimes," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 45, CREFE, Université du Québec à Montréal.
  9. Alejandro Justiniano, 2004. "Sources and Propagation Mechanims of Foreign Disturbances in Small Open Economies: A Dynamic Factor Analysis," Econometric Society 2004 Latin American Meetings, Econometric Society 148, Econometric Society.

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