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Staggered Wages, Financial Frictions, and the International Comovement Problem

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Author Info
Yossi Yakhin (Rice University)

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Abstract

Standard international real business cycle models often generate negative cross-country correlations in labor and investment. The data, however, display positive correlations. This paper studies the effect of real wage rigidity and financial frictions on international comovement. We find that staggered wages mainly improve the cross-country correlation of labor, while financial frictions improve investment comovement. However, each friction alone cannot account for the magnitude of international correlations of either variable. When the two imperfections are introduced together, the effect of each friction endogenously reinforces the other and the model generates realistic correlations in both variables. (Copyright: Elsevier)

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File URL: http://dx.doi.org/10.1016/j.red.2006.09.001
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Publisher Info
Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 10 (2007)
Issue (Month): 1 (January)
Pages: 148-171
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Handle: RePEc:red:issued:06-90

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Related research
Keywords: International real business cycles; Staggered wages; Comovement; Incomplete financial markets;

Find related papers by JEL classification:
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
F20 - International Economics - - International Factor Movements and International Business - - - General
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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This page was last updated on 2009-10-28.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.