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Global versus Country-Specific Shocks and International Business Cycles

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  • Michel Normandin

    ()
    (IEA, HEC Montréal)

  • Bruno Powo Fosso

Abstract

This paper documents the relative importance of global and country-specific shocks for international business cycles. For this purpose, we rely on a symmetric two-country, dynamic, general-equilibrium model with costly, incomplete, international financial markets. We also relate exogenous technologies and government expenditures to unobservable common and idiosynchratic components, and apply a Kalman filter to extract the associated global and country-specific shocks. We show that the baseline parametrization of the model, including all shocks, closely matches the cyclical fluctuations of key macroeconomic variables for the United States and a non-US aggregate over the post-1975 period. We then experiment alternative parametrizations, isolating the effects of each shock, and find that country-specific technology shocks constitute a prime determinant of international business cycles. Also, global technology shocks have marginal contributions, whereas global and country-specific government-expenditure shocks have negligible effects on cyclical fluctuations.

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Bibliographic Info

Paper provided by HEC Montréal, Institut d'économie appliquée in its series Cahiers de recherche with number 05-07.

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Length: 48 pages
Date of creation: Dec 2005
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Handle: RePEc:iea:carech:0507

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Postal: Institut d'économie appliquée HEC Montréal 3000, Chemin de la Côte-Sainte-Catherine Montréal, Québec H3T 2A7
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Keywords: General Equilibrium; Kalman Filter; Symmetric Economies.;

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References

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Cited by:
  1. Enders, Zeno & Müller, Gernot J., 2009. "On the international transmission of technology shocks," Journal of International Economics, Elsevier, Elsevier, vol. 78(1), pages 45-59, June.
  2. Marek Lubiński, 2007. "International Business Cycle," Contemporary Economics, University of Finance and Management in Warsaw, University of Finance and Management in Warsaw, vol. 1(2), June.
  3. Zeno Enders & Gernot J. Mueller, 2006. "S-Curve Redux: On the International Transmission of Technology Shocks," Economics Working Papers, European University Institute ECO2006/36, European University Institute.

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