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Global versus country-specific shocks and international business cycles

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  • Boileau, Martin
  • Normandin, Michel
  • Powo Fosso, Bruno

Abstract

We study the contributions of global and country-specific shocks to international business cycles. To do so, we decompose technology and government expenditures for the US and an aggregate of non-US G7 countries into global and country-specific components using a Kalman-filter procedure. We then analyze how these components affect the fluctuations of key macroeconomic variables from two versions of an international real business cycle model. The complete markets version assumes that consumers trade a complete set of contingent assets, while the incomplete markets version assumes that consumers trade a non-contingent bond. Our analysis suggests that global and country-specific technology shocks are important, but that global and country-specific government expenditures shocks are not. Country-specific technology shocks explain most of the conventional within-country business cycle statistics, while global and country-specific technology shocks are both required to explain the cross-country correlations of output and consumption.

Suggested Citation

  • Boileau, Martin & Normandin, Michel & Powo Fosso, Bruno, 2010. "Global versus country-specific shocks and international business cycles," Journal of Macroeconomics, Elsevier, vol. 32(1), pages 1-16, March.
    • Handle: RePEc:eee:jmacro:v:32:y:2010:i:1:p:1-16
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    4. Zeno Enders & Gernot J. Mueller, 2006. "S-Curve Redux: On the International Transmission of Technology Shocks," Economics Working Papers ECO2006/36, European University Institute.

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    More about this item

    Keywords

    General equilibrium Kalman filter Symmetric economies;

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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