The High Cross-Country Correlations of Prices and Interest Rates
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.Bibliographic Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10963.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:
- Espen Henriksen & Finn E. Kydland & Roman Sustek, . "The High Cross-Country Correlations of Prices and Interest Rates," Discussion Papers 11/01, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-10-13 (All new papers)
- NEP-CBA-2008-10-13 (Central Banking)
- NEP-DGE-2008-10-13 (Dynamic General Equilibrium)
- NEP-MAC-2008-10-13 (Macroeconomics)
- NEP-MON-2008-10-13 (Monetary Economics)
- NEP-OPM-2008-10-13 (Open Economy Macroeconomic)
References
References listed on IDEASPlease 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.:
- 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.
- Morten Ravn, . "GAUSS code for Backus-Kehoe-Kydland," QM&RBC Codes 106, Quantitative Macroeconomics & Real Business Cycles.
- David Backus & Patrick Kehoe & Finn E. Kydland, 1992. "Web interface for "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?"," QM&RBC Codes 5a, Quantitative Macroeconomics & Real Business Cycles.
- 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.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1992. "Dynamics of the trade balance and the terms of trade: the S-curve," Working Paper 9211, Federal Reserve Bank of Cleveland.
- David Backus & Patrick Kehoe & Finn E. Kydland, 1992. "DOS executable for "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?"," QM&RBC Codes 5, Quantitative Macroeconomics & Real Business Cycles.
- Jordi Gali & Mark Gertler, 2000.
"Inflation Dynamics: A Structural Econometric Analysis,"
NBER Working Papers
7551, National Bureau of Economic Research, Inc.
- Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, vol. 44(2), pages 195-222, October.
- Jordi Galí & Mark Gertler, 1998. "Inflation dynamics: A structural econometric analysis," Economics Working Papers 341, Department of Economics and Business, Universitat Pompeu Fabra.
- Baxter, M. & Crucini, M., 1991.
"Business Cycles and the Asset Structure of Foreign Trade,"
RCER Working Papers
316, University of Rochester - Center for Economic Research (RCER).
- Baxter, Marianne & Crucini, Mario J, 1995. "Business Cycles and the Asset Structure of Foreign Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(4), pages 821-54, November.
- Marianne Baxter & Mario J. Crucini, 1992. "Business cycles and the asset structure of foreign trade," Discussion Paper / Institute for Empirical Macroeconomics 59, Federal Reserve Bank of Minneapolis.
- Marianne Baxter & Mario J. Crucini, 1994. "Business Cycles and the Asset Structure of Foreign Trade," NBER Working Papers 4975, National Bureau of Economic Research, Inc.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1987.
"International real business cycles,"
Working Papers
426, Federal Reserve Bank of Minneapolis.
- Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1992. "International Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 100(4), pages 745-75, August.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1991. "International real business cycles," Staff Report 146, Federal Reserve Bank of Minneapolis.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999.
"The Band Pass Filter,"
NBER Working Papers
7257, National Bureau of Economic Research, Inc.
- 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, vol. 44(2), pages 435-465, 05.
- Lawrence J. Christiano & Terry J. Fitzgerald, 1999. "The Band pass filter," Working Paper 9906, Federal Reserve Bank of Cleveland.
- Matteo Ciccarelli & Benoît Mojon, 2005.
"Global inflation,"
Working Paper Series
537, European Central Bank.
- Matteo Ciccarelli & Beno�t Mojon, 2010. "Global Inflation," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 524-535, August.
- Matteo Ciccarelli & Benoît Mojon, 2008. "Global inflation," Working Paper Series WP-08-05, Federal Reserve Bank of Chicago.
- Matteo Ciccarelli & Benoît Mojon, 2007. "Global Inflation," Kiel Working Papers 1337, Kiel Institute for the World Economy.
- Matteo Ciccarelli & Benoît Mojon, 2005. "Global Inflation," Working Papers Central Bank of Chile 357, Central Bank of Chile.
- Heathcote, Jonathan & Perri, Fabrizio, 2002.
"Financial autarky and international business cycles,"
Journal of Monetary Economics,
Elsevier, vol. 49(3), pages 601-627, April.
- Heathcote, Jonathan & Perri, Fabrizio, 1999. "Financial Autarky and International Business Cycles," Working Paper Series in Economics and Finance 320, Stockholm School of Economics, revised 30 Apr 2000.
- Christian Zimmermann, 1995.
"International Real Business Cycles among Heterogeneous Countries,"
Cahiers de recherche CREFE / CREFE Working Papers
38, CREFE, Université du Québec à Montréal.
- Zimmermann, Christian, 1997. "International real business cycles among heterogeneous countries," European Economic Review, Elsevier, vol. 41(2), pages 319-356, February.
- Christian Zimmermann, 1996. "International Real Business Cycles among Heterogeneous Countries," Macroeconomics 9607002, EconWPA.
- Anna Maria Agresti & Benoit Mojon, 2001. "Some stylised facts on the Euro area business cycle," Working Paper Series 095, European Central Bank.
- Sack, Brian & Wieland, Volker, 2000.
"Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence,"
Journal of Economics and Business,
Elsevier, vol. 52(1-2), pages 205-228.
- Brian Sack & Volker Wieland, 1999. "Interest-rate smoothing and optimal monetary policy: a review of recent empirical evidence," Finance and Economics Discussion Series 1999-39, Board of Governors of the Federal Reserve System (U.S.).
- Richard Clarida & Jordi Gali & Mark Gertler, 1997.
"Monetary Policy Rules in Practice: Some International Evidence,"
NBER Working Papers
6254, National Bureau of Economic Research, Inc.
- Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," CEPR Discussion Papers 1750, C.E.P.R. Discussion Papers.
- Clarida, Richard & Gali, Jordi & Gertler, Mark, 1997. "Monetary Policy Rules in Practice: Some International Evidence," Working Papers 97-32, C.V. Starr Center for Applied Economics, New York University.
- 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.
- Roman Sustek, 2010. "Code and data files for "Monetary Business Cycle Accounting"," Computer Codes 09-177, Review of Economic Dynamics.
- Sustek, Roman, 2009. "Monetary Business Cycle Accounting," MPRA Paper 17518, University Library of Munich, Germany.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2002.
"Business cycle accounting,"
Working Papers
625, Federal Reserve Bank of Minneapolis.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2007. "Business Cycle Accounting," Econometrica, Econometric Society, vol. 75(3), pages 781-836, 05.
- V. V. Chari & Patrick Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," Levine's Bibliography 122247000000000560, UCLA Department of Economics.
- V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 2006. "Business cycle accounting," Staff Report 328, Federal Reserve Bank of Minneapolis.
- V V Chari & Patrick J Kehoe & Ellen R. McGrattan, 2003. "Business Cycle Accounting," Levine's Bibliography 506439000000000421, UCLA Department of Economics.
- V.V. Chari & Patrick J. Kehoe & Ellen McGrattan, 2004. "Business Cycle Accounting," NBER Working Papers 10351, National Bureau of Economic Research, Inc.
- Haroon Mumtaz & Paolo Surico, 2008.
"Evolving international inflation dynamics: evidence from a time-varying dynamic factor model,"
Bank of England working papers
341, Bank of England.
- Mumtaz, Haroon & Surico, Paolo, 2008. "Evolving International Inflation Dynamics: Evidence from a Time-varying Dynamic Factor Model," CEPR Discussion Papers 6767, C.E.P.R. Discussion Papers.
- Matthew B. Canzoneri & Dale W. Henderson, 1991. "Monetary Policy in Interdependent Economies: A Game-Theoretic Approach," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031787.
- David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993.
"International Business Cycles: Theory and Evidence,"
Working Papers
93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
- 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.
- 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, vol. 54(7), pages 1863-1881, October.
- M. Ayhan Kose & Christopher Otrok & Charles H. Whiteman, 2003. "International Business Cycles: World, Region, and Country-Specific Factors," American Economic Review, American Economic Association, vol. 93(4), pages 1216-1239, September.
- Finn E. Kydland & Edward C. Prescott, 1990. "Business cycles: real facts and a monetary myth," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 3-18.
- Athanasios Orphanides, 2002.
"Monetary policy rules and the Great Inflation,"
Finance and Economics Discussion Series
2002-8, Board of Governors of the Federal Reserve System (U.S.).
- Athanasios Orphanides, 2002. "Monetary-Policy Rules and the Great Inflation," American Economic Review, American Economic Association, vol. 92(2), pages 115-120, May.
- Charles Bean, 2007. "Globalisation and Inflation," World Economics, World Economics, Economic & Financial Publishing, PO Box 69, Henley-on-Thames, Oxfordshire, United Kingdom, RG9 1GB, vol. 8(1), pages 57-73, January.
- Robert E. Lucas, Jr., 2000. "Inflation and Welfare," Econometrica, Econometric Society, vol. 68(2), pages 247-274, March.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
Citations
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.Cited by:
- Vo Phuong Mai Le & Patrick Minford & Michael Wickens, 2009.
" The ‘Puzzles’ Methodology: En Route to Indirect Inference?,"
CDMA Conference Paper Series
0903, Centre for Dynamic Macroeconomic Analysis.
- Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael, 2010. "The 'Puzzles' methodology: En route to Indirect Inference?," Economic Modelling, Elsevier, vol. 27(6), pages 1417-1428, November.
- 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.
- Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael R., 2009. "The 'Puzzles' Methodology: en route to Indirect Inference?," CEPR Discussion Papers 7539, C.E.P.R. Discussion Papers.
- Neely, Christopher J. & Rapach, David E., 2011. "International comovements in inflation rates and country characteristics," Journal of International Money and Finance, Elsevier, vol. 30(7), pages 1471-1490.
- Mumtaz, Haroon & Simonelli, Saverio & Surico, Paolo, 2009.
"International comovements, business cycle and inflation: a historical perspective,"
Discussion Papers
28, Monetary Policy Committee Unit, Bank of England.
- Haroon Mumtaz & Saverio Simonelli & Paolo Surico, 2011. "International Comovements, Business Cycle and Inflation: a Historical Perspective," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(1), pages 176-198, January.
- Haroon Mumtaz & Saverio Simonelli & Paolo Surico, 2009. "International Comovements, Business Cycle and Inflation: a Historical Perspective," CSEF Working Papers 233, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
- Saverio Simonelli & Haroon Mumtaz & Paolo Surico, 2009. "A Historical Perspective on International Co-movements: 1821-2007," 2009 Meeting Papers 523, Society for Economic Dynamics.
- Sustek, Roman, 2010.
"Monetary aggregates and the business cycle,"
Journal of Monetary Economics,
Elsevier, vol. 57(4), pages 451-465, May.
- Sustek, Roman, 2009. "Monetary Aggregates and the Business Cycle," MPRA Paper 17202, University Library of Munich, Germany.
- 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.
- Roman Sustek, 2010. "Code and data files for "Monetary Business Cycle Accounting"," Computer Codes 09-177, Review of Economic Dynamics.
- Sustek, Roman, 2009. "Monetary Business Cycle Accounting," MPRA Paper 17518, University Library of Munich, Germany.
- Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael R., 2010.
"Some Problems in the Testing of DSGE Models,"
CEPR Discussion Papers
7621, C.E.P.R. Discussion Papers.
- Le, Vo Phuong Mai & Minford, Patrick & Wickens, Michael, 2009. "Some problems in the testing of DSGE models," Cardiff Economics Working Papers E2009/31, Cardiff University, Cardiff Business School, Economics Section.
Lists
This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.Statistics
Access and download statisticsCorrections
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:10963For 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.

