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Explaining International Comovements of Output and Asset Returns

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  • Robert Miguel W. K. Kollman
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    Abstract

    Empirically, output and asset returns are highly positively correlated across the United States and the other major industrialized countries. Standard business cycle models that assume flexible prices and wages, in the Real Business Cycle tradition, have great difficulties explaining this fact. This paper presents a dynamic-optimizing stochastic general equilibrium model of a two-country world with sticky nominal prices and wages and a flexible exchange rate. The structure here predicts positive international transmission of country-specific monetary policy and technology shocks, and it generates sizable cross-country correlations of output and of asset returns.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 99/84.

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    Length: 50
    Date of creation: 01 Jun 1999
    Date of revision:
    Handle: RePEc:imf:imfwpa:99/84

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    Cited by:
    1. Bennett T McCallum & Edward Nelson, 2001. "Monetary Policy for an Open Economy: An Alternative Framework with Optimising Agents and Sticky Prices," Discussion Papers, Monetary Policy Committee Unit, Bank of England 05, Monetary Policy Committee Unit, Bank of England.
    2. Burda, Michael C, 1999. "European Labour Markets and the Euro: How Much Flexibility Do We Really Need?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2217, C.E.P.R. Discussion Papers.
    3. Tarkka , Juha & Kortelainen , Mika, 2005. "International economic spillovers and the liquidity trap," Research Discussion Papers, Bank of Finland 18/2005, Bank of Finland.
    4. Fabio Ghironi, 2000. "Understanding Macroeconomic Interdependence: Do We Really Need to Shut Off the Current Account?," Boston College Working Papers in Economics, Boston College Department of Economics 465, Boston College Department of Economics, revised 14 Aug 2003.
    5. Carlos Borondo, . "International Transmission of Monetary Shocks with Interest Rate Rule," Working Papers on International Economics and Finance 00-04, FEDEA.
    6. Fabio Ghironi, 2000. "Alternative Monetary Rules for a Small Open Economy: The Case of Canada," Boston College Working Papers in Economics, Boston College Department of Economics 466, Boston College Department of Economics, revised 30 Oct 2000.
    7. Fabio Ghironi, 2000. "Towards New Open Economy Macroeconometrics," Boston College Working Papers in Economics, Boston College Department of Economics 469, Boston College Department of Economics.
    8. Faust, Jon & Rogers, John H., 2003. "Monetary policy's role in exchange rate behavior," Journal of Monetary Economics, Elsevier, Elsevier, vol. 50(7), pages 1403-1424, October.
    9. T.C.Y. Kam & G.C. Lim, 2001. "Interest Rate Smoothing and Inflation-Output Variabilityin a Small Open Economy," Department of Economics - Working Papers Series, The University of Melbourne 817, The University of Melbourne.

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