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The International Transmission of Real Business Cycles

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  • Cantor, Richard
  • Mark, Nelson C

Abstract

The authors present a stochastic model of two barter economies, with production, linked by free trade in goods and securities, which generates Pareto-efficient international transmissions of business cycle disturbances. Each country is inhabi ted by an infinitely-lived, representative firm and consumer/worker, and is subject to country-specific production shocks. The internation al capital market effects perfect pooling of country-specific risk. C onsumption and output volatility may be higher in trade than under au tarchy, as agents can be induced to undertake additional "risk" in exchange for a higher expected utility. Copyright 1988 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Cantor, Richard & Mark, Nelson C, 1988. "The International Transmission of Real Business Cycles," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 29(3), pages 493-507, August.
  • Handle: RePEc:ier:iecrev:v:29:y:1988:i:3:p:493-507
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    References listed on IDEAS

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