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Modeling News-Driven International Business Cycles

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  • Paul Beaudry

    (University of British Columbia)

  • Martial Dupaigne

    (Toulouse School of Economics)

  • Franck Portier

    (Toulouse School of Economics)

Abstract

This paper reexamines the question of how to explain business cycle co-movements within and between countries. First, we present a simple flexible price models to illustrate how and why news shocks can generate robust positive co-movements in economic activity across countries. We also discuss under what conditions a two-sector version of the model generates appropriate business cycle patterns within countries. Second, we develop a quantitative two-country two-sector model that is capable of replicating news driven international business cycles. The model is a two-country extension of the closed economy model of Beaudry & Portier [2004], in which there are limited possibilities to reallocate factors between investment and consumption good sectors. (Copyright: Elsevier)

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Bibliographic Info

Article provided by Elsevier for the Society for Economic Dynamics in its journal Review of Economic Dynamics.

Volume (Year): 14 (2011)
Issue (Month): 1 (January)
Pages: 72-91

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Handle: RePEc:red:issued:09-245

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Keywords: Business cycles; Expectations; International fluctuations; News shocks;

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References

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  1. AMBLER, Steve & CARDIA, Emanuela & ZIMMERMANN, Christian, 2000. "International Business Cycles: What Are the Facts?," Cahiers de recherche 2000-05, Universite de Montreal, Departement de sciences economiques.
  2. Nir Jaimovich & Sergio Rebelo, 2006. "Can News About the Future Drive the Business Cycle?," 2006 Meeting Papers 31, Society for Economic Dynamics.
  3. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
  4. Den Haan, Wouter J. & Kaltenbrunner, Georg, 2009. "Anticipated growth and business cycles in matching models," Journal of Monetary Economics, Elsevier, vol. 56(3), pages 309-327, April.
  5. Nir Jaimovich & Sergio Rebelo, 2007. "News and Business Cycles in Open Economies," NBER Working Papers 13444, National Bureau of Economic Research, Inc.
  6. Beaudry, Paul & Collard, Fabrice & Portier, Franck, 2011. "Gold rush fever in business cycles," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 84-97, March.
  7. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2003. "International risk-sharing and the transmission of productivity shocks," Working Papers 03-19, Federal Reserve Bank of Philadelphia.
  8. Paul Beaudry & Bernd Lucke, 2010. "Letting Different Views about Business Cycles Compete," NBER Chapters, in: NBER Macroeconomics Annual 2009, Volume 24, pages 413-455 National Bureau of Economic Research, Inc.
  9. 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, vol. 84(1), pages 84-103, March.
  10. Beaudry, Paul & Portier, Franck, 2005. "The 'News' View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral US Data," CEPR Discussion Papers 5176, C.E.P.R. Discussion Papers.
  11. Wen, Yi, 2007. "By force of demand: Explaining international comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 1-23, January.
  12. Robert B. Barsky & Eric R. Sims, 2009. "News Shocks," NBER Working Papers 15312, National Bureau of Economic Research, Inc.
  13. Beaudry, Paul & Portier, Franck, 2007. "When can changes in expectations cause business cycle fluctuations in neo-classical settings?," Journal of Economic Theory, Elsevier, vol. 135(1), pages 458-477, July.
  14. Beaudry, Paul & Portier, Franck, 2001. "An Exploration into Pigou's Theory of Cycles," CEPR Discussion Papers 2996, C.E.P.R. Discussion Papers.
  15. Haertel, Thomas & Lucke, Bernd, 2007. "New Evidence on News-Driven Business Cycles," Economics Discussion Papers 2007-27, Kiel Institute for the World Economy.
  16. Martial Dupaigne & Franck Portier & Paul Beaudry, 2007. "The International Propagation of News Shocks," 2007 Meeting Papers 251, Society for Economic Dynamics.
  17. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
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Citations

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Cited by:
  1. Gunes Kamber & Konstantinos Theodoridis & Christoph Thoenissen, 2014. "News-driven business cycles in small open economies," CAMA Working Papers 2014-02, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Beaudry, Paul & Portier, Franck, 2013. "News Driven Business Cycles: Insights and Challenges," CEPR Discussion Papers 9624, C.E.P.R. Discussion Papers.
  3. Kyriacos Lambrias, 2013. "News Shocks, Real Exchange Rates and International Co-Movements," BCL working papers 83, Central Bank of Luxembourg.
  4. Manuel Portugal Ferreira & Fernando A. Ribeiro Serra & Benny Kramer Costa, 2011. "The RBV in International Business Studies: A bibliometric study of Barney?s (1991) contribution to the field," Working Papers 82, globADVANTAGE, Polytechnic Institute of Leiria.
  5. Blake, Andrew P., 2012. "Equally shocking news," Economics Letters, Elsevier, vol. 117(3), pages 866-869.
  6. William Dupor & M. Saif Mehkari, 2013. "The analytics of technology news shocks," Working Papers 2013-036, Federal Reserve Bank of St. Louis.
  7. Tony Hall & Jan Jacobs & Adrian Pagan, 2013. "Macro-Econometric System Modelling @75," CAMA Working Papers 2013-67, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  8. Manuel Portugal Ferreira & Nuno Rosa Reis & Fernando Ribeiro Serra & Benny Kramer Costa, 2013. "Understanding the footprint of the RBV in International Business studies: The last twenty years of research," Working Papers 96, globADVANTAGE, Polytechnic Institute of Leiria.
  9. Christopher M. Gunn & Alok Johri, 2013. "Fear of Sovereign Default, Banks, and Expectations-Driven Business Cycles," Carleton Economic Papers 13-03, Carleton University, Department of Economics.

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