Advanced Search
MyIDEAS: Login to save this paper or follow this series

The High Cross-Country Correlations of Prices and Interest Rates

Contents:

Author Info

  • Henriksen, Espen
  • Kydland, Finn
  • Sustek, Roman

Abstract

We document that, at business cycle frequencies, fluctuations in nominal variables, such as aggregate price levels and nominal interest rates, are substantially more synchronized across countries than fluctuations in real output. To the extent that domestic nominal variables are determined by domestic monetary policy, and central banks generally attempt to keep the domestic nominal environment stable, this might seem surprising. We ask if a parsimonious international business cycle model can account for this aspect of cross-country aggregate fluctuations. It can. Due to spillovers of technology shocks across countries, expected future responses of national central banks to fluctuations in domestic output and inflation generate movements in current prices and interest rates that are synchronized across countries even when output is not. Even modest spillovers produce cross-country correlations such as those in the data.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://mpra.ub.uni-muenchen.de/10963/
File Function: original version
Download Restriction: no

Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10963.

as in new window
Length:
Date of creation: 12 Sep 2008
Date of revision:
Handle: RePEc:pra:mprapa:10963

Contact details of provider:
Postal: Schackstr. 4, D-80539 Munich, Germany
Phone: +49-(0)89-2180-2219
Fax: +49-(0)89-2180-3900
Web page: http://mpra.ub.uni-muenchen.de
More information through EDIRC

Related research

Keywords: International business cycles; prices; interest rates;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Lawrence J. Christiano & Terry J. Fitzgerald, 2003. "The Band Pass Filter," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(2), pages 435-465, 05.
  2. Christian Zimmermann, 1995. "International Real Business Cycles among Heterogeneous Countries," Cahiers de recherche CREFE / CREFE Working Papers, CREFE, Université du Québec à Montréal 38, CREFE, Université du Québec à Montréal.
  3. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the Trade Balance and the Terms of Trade: The S-Curve," NBER Working Papers 4242, National Bureau of Economic Research, Inc.
  4. Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series, Federal Reserve Bank of Chicago WP-08-05, Federal Reserve Bank of Chicago.
  5. V.V. Chari & Patrick J. Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," NBER Working Papers 10351, National Bureau of Economic Research, Inc.
  6. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers, C.V. Starr Center for Applied Economics, New York University 97-32, C.V. Starr Center for Applied Economics, New York University.
  7. Athanasios Orphanides, 2002. "Monetary policy rules and the Great Inflation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-8, Board of Governors of the Federal Reserve System (U.S.).
  8. Marianne Baxter & Mario J. Crucini, 1992. "Business cycles and the asset structure of foreign trade," Discussion Paper / Institute for Empirical Macroeconomics, Federal Reserve Bank of Minneapolis 59, Federal Reserve Bank of Minneapolis.
  9. Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262031787, December.
  10. Heathcote, Jonathan & Perri, Fabrizio, 2002. "Financial autarky and international business cycles," Journal of Monetary Economics, Elsevier, Elsevier, vol. 49(3), pages 601-627, April.
  11. Agresti, Anna Maria & Mojon, Benoît, 2001. "Some stylised facts on the euro area business cycle," Working Paper Series, European Central Bank 0095, European Central Bank.
  12. David Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," NBER Working Papers 4493, National Bureau of Economic Research, Inc.
  13. Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, Econometric Society, vol. 68(2), pages 247-274, March.
  14. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 100(4), pages 745-75, August.
  15. M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, American Economic Association, vol. 93(4), pages 1216-1239, September.
  16. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 39(1), pages 195-214, December.
  17. Roman Sustek, 2011. "Monetary Business Cycle Accounting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 592-612, October.
  18. Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1999-39, Board of Governors of the Federal Reserve System (U.S.).
  19. Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 341, Department of Economics and Business, Universitat Pompeu Fabra.
  20. Mumtaz, Haroon & Surico, Paolo, 2008. "Evolving International Inflation Dynamics: Evidence from a Time-varying Dynamic Factor Model," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6767, C.E.P.R. Discussion Papers.
  21. Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 8(1), pages 57-73, January.
  22. Canzoneri, Matthew B. & Cumby, Robert E. & Diba, Behzad T., 2007. "Euler equations and money market interest rates: A challenge for monetary policy models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 54(7), pages 1863-1881, October.
  23. Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Sustek, Roman, 2009. "Monetary Aggregates and the Business Cycle," MPRA Paper 17202, University Library of Munich, Germany.
  2. Byrne, Joseph P. & Fazio, Giorgio & Fiess, Norbert, 2012. "Interest rate co-movements, global factors and the long end of the term spread," Journal of Banking & Finance, Elsevier, Elsevier, vol. 36(1), pages 183-192.
  3. Roman Sustek, 2011. "Monetary Business Cycle Accounting," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 592-612, October.
  4. Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael, 2009. "The 'Puzzles' methodology: en route to Indirect Inference?," Cardiff Economics Working Papers E2009/22, Cardiff University, Cardiff Business School, Economics Section.
  5. Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael R., 2010. "Some Problems in the Testing of DSGE Models," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7621, C.E.P.R. Discussion Papers.
  6. Haroon Mumtaz & Saverio Simonelli & Paolo Surico, 2009. "International Comovements, Business Cycle and Inflation: a Historical Perspective," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 233, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  7. Lindenberg, Nannette & Westermann, Frank, 2012. "Common trends and common cycles among interest rates of the G7-countries," Journal of Macroeconomics, Elsevier, Elsevier, vol. 34(4), pages 1125-1140.
  8. Raphael A Auer & Aaron Mehrotra, 2014. "Trade linkages and the globalisation of inflation in Asia and the Pacific," BIS Working Papers 447, Bank for International Settlements.
  9. Saverio Simonelli & Haroon Mumtaz & Paolo Surico, 2009. "A Historical Perspective on International Co-movements: 1821-2007," 2009 Meeting Papers, Society for Economic Dynamics 523, Society for Economic Dynamics.
  10. Byrne, Joseph P. & Fazio, Giorgio & Fiess, Norbert, 2010. "Interest Rate Co-movements, Global Factors and the Long End of the Term Spread," SIRE Discussion Papers, Scottish Institute for Research in Economics (SIRE) 2010-24, Scottish Institute for Research in Economics (SIRE).
  11. Neely, Christopher J. & Rapach, David E., 2011. "International comovements in inflation rates and country characteristics," Journal of International Money and Finance, Elsevier, Elsevier, vol. 30(7), pages 1471-1490.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10963. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.