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Globally correlated nominal fluctuations

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  • Henriksen, Espen
  • Kydland, Finn E.
  • Šustek, Roman

Abstract

Fluctuations in nominal variables—aggregate price levels and nominal interest rates—are documented to be substantially more synchronized across countries at business cycle frequencies than fluctuations in real output. A transparent mechanism accounting for this striking feature of the nominal environment is described and quantitatively evaluated. It is based on the interaction between (small) cross-country spillovers of shocks, Taylor rules, and domestic no-arbitrage conditions. The mechanism is robust to various parameterizations and extensions aligning the model with other important aspects of domestic and international fluctuations. Furthermore, its key features are consistent with cross-country forecasts from Consensus survey.

Suggested Citation

  • Henriksen, Espen & Kydland, Finn E. & Šustek, Roman, 2013. "Globally correlated nominal fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 613-631.
  • Handle: RePEc:eee:moneco:v:60:y:2013:i:6:p:613-631 DOI: 10.1016/j.jmoneco.2013.05.006
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    Cited by:

    1. Kydland, Finn E. & Rupert, Peter & Šustek, Roman, 2014. "Housing dynamics over the business cycle," LSE Research Online Documents on Economics 86334, London School of Economics and Political Science, LSE Library.
    2. Javier Villar Burke, 2016. "Stocks or flows? New thinking about monetary transmission through the lending channel," Working Papers 2016.04, International Network for Economic Research - INFER.
    3. Winkelmann, Lars & Netsunajev, Aleksei, 2015. "International Transmissions of Inflation Expectations in a Markov Switching Structural VAR Model," Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 112900, Verein für Socialpolitik / German Economic Association.
    4. Jonathan Kearns, 2016. "Global inflation forecasts," BIS Working Papers 582, Bank for International Settlements.
    5. Henriksen, Espen & Kydland, Finn E. & Šustek, Roman, 2013. "Globally correlated nominal fluctuations," Journal of Monetary Economics, Elsevier, pages 613-631.
    6. Kydland, Finn & Rupert, Peter & Sustek, Roman, 2012. "Housing Dynamics over the Business Cycle," University of California at Santa Barbara, Economics Working Paper Series qt7bn5k73m, Department of Economics, UC Santa Barbara.
    7. 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.
    8. Piti Disyatat & Phurichai Rungcharoenkitkul, 2016. "Financial globalisation and monetary independence," BIS Papers chapters,in: Bank for International Settlements (ed.), Expanding the boundaries of monetary policy in Asia and the Pacific, volume 88, pages 213-225 Bank for International Settlements.
    9. Stijn Claessens & M. Ayhan Kose, 2017. "Asset prices and macroeconomic outcomes: A survey," CAMA Working Papers 2017-76, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    10. Jung, Kuk Mo, 2016. "Uncertainty-Induced Dynamic Inefficiency and the Optimal Inflation Rate," MPRA Paper 69715, University Library of Munich, Germany.
    11. Luca A Ricci & Wei Shi, 2016. "Trilemma or Dilemma; Inspecting the Heterogeneous Response of Local Currency Interest Rates to Foreign Rates," IMF Working Papers 16/75, International Monetary Fund.
    12. Disyatat, Piti & Rungcharoenkitkul, Phurichai, 2017. "Monetary policy and financial spillovers: Losing traction?," Journal of International Money and Finance, Elsevier, pages 115-136.
    13. Aleksei Netšunajev & Lars Winkelmann, 2016. "International dynamics of inflation expectations," SFB 649 Discussion Papers SFB649DP2016-019, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    14. Hugo Gerard, 2012. "Co-movement in Inflation," RBA Research Discussion Papers rdp2012-01, Reserve Bank of Australia.
    15. Henriksen, Espen & Kydland, Finn E. & Šustek, Roman, 2013. "Globally correlated nominal fluctuations," Journal of Monetary Economics, Elsevier, pages 613-631.
    16. Leif Anders Thorsrud, 2013. "Global and regional business cycles. Shocks and propagations," Working Papers No 3/2013, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • 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

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