Staggered Wages, Financial Frictions, and the International Comovement Problem
AbstractStandard 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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Bibliographic InfoArticle provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.
Volume (Year): 10 (2007)
Issue (Month): 1 (January)
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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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- Alexandre Dmitriev & Ivan Roberts, 2013.
"International Business Cycles with Complete Markets,"
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- Dmitriev, Alexandre & Roberts, Ivan, 2012. "International business cycles with complete markets," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(6), pages 862-875.
- Dmitriev, Alexandre & Roberts, Ivan, 2013. "The cost of adjustment: On comovement between the trade balance and the terms of trade," Economic Modelling, Elsevier, Elsevier, vol. 35(C), pages 689-700.
- Yossi Yakhin, 2008. "Financial Integration And Cyclicality Of Monetary Policy In Small Open Economies," Working Papers, Ben-Gurion University of the Negev, Department of Economics 0811, Ben-Gurion University of the Negev, Department of Economics.
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