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International Business Cycles with Mutliple Input Investment Technologies

Listed author(s):
  • Oviedo, P. Marcelo
  • Singh, Rajesh
Registered author(s):

    Backus, Kehoe, and Kydland (International Real Business Cycles, JPE, 100 (4), 1992) documented several discrepancies between the observed post-war business cycles of developed countries and the predictions of a two-country, complete-market model. The main discrepancy dubbed as the quantity anomaly, that cross-country consumption correlations are higher than that of output in the model as opposed to the data, has remained a central puzzle in international economics. The main thesis of this paper is that when the standard two-country model with traded and non-traded goods and complete ¯nancial markets, as in Stockman and Tesar (Tastes and Technology in a Two Country Model of the Business Cycles: Explaining International Comovements, 85 (1), AER, 1995) is extended to include capital goods sectors that utilize both traded and non-traded goods as intermediates, and when the non-traded aggregate is reclassi¯ed to include distribution and transportation services, the model produces the correct ordering of the cross-country correlations of consumption and output.

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    File URL: http://www2.econ.iastate.edu/papers/p12800-2011-04-30.pdf
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    Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers Archive with number 32800.

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    Date of creation: 31 Mar 2008
    Handle: RePEc:isu:genres:32800
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    Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070

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    Web page: http://www.econ.iastate.edu
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    1. Corsetti, Giancarlo & Dedola, Luca, 2005. "A macroeconomic model of international price discrimination," Journal of International Economics, Elsevier, vol. 67(1), pages 129-155, September.
    2. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-137, February.
    3. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "International Risk Sharing and the Transmission of Productivity Shocks," Review of Economic Studies, Oxford University Press, vol. 75(2), pages 443-473.
    4. Michael A. Kouparitsas, 1996. "North-South financial integration and business cycles," Working Paper Series, Macroeconomic Issues WP-96-10, Federal Reserve Bank of Chicago.
    5. Backus, David K. & Smith, Gregor W., 1993. "Consumption and real exchange rates in dynamic economies with non-traded goods," Journal of International Economics, Elsevier, vol. 35(3-4), pages 297-316, November.
    6. Stockman, Alan C & Tesar, Linda L, 1995. "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements," American Economic Review, American Economic Association, vol. 85(1), pages 168-185, March.
    7. Pakko, Michael R, 1997. "International Risk Sharing and Low Cross-Country Consumption Correlations: Are They Really Inconsistent?," Review of International Economics, Wiley Blackwell, vol. 5(3), pages 386-400, August.
    8. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
    9. Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2002. "International transmission of the business cycle in a multi-sector model," European Economic Review, Elsevier, vol. 46(2), pages 273-300, February.
    10. Linda S. Goldberg & José Manuel Campa, 2006. "Distribution Margins, Imported Inputs, and the Sensitivity of the CPI to Exchange Rates," NBER Working Papers 12121, National Bureau of Economic Research, Inc.
    11. Kollmann, Robert, 1996. "Incomplete asset markets and the cross-country consumption correlation puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 20(5), pages 945-961, May.
    12. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
    13. Rudolfs Bems, 2008. "Aggregate Investment Expenditures on Tradable and Nontradable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 852-883, October.
    14. Giancarlo Corsetti & Luca Dedola, 2002. "Macroeconomics of international price discrimination," International Finance Discussion Papers 744, Board of Governors of the Federal Reserve System (U.S.).
    15. Jonathan Heathcote & Fabrizio Perri, 2003. "Why Has the U.S. Economy Become Less Correlated with the Rest of the World?," American Economic Review, American Economic Association, vol. 93(2), pages 63-69, May.
    16. Timothy J. Kehoe & Kim J. Ruhl, 2008. "Are Shocks to the Terms of Trade Shocks to Productivity?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 804-819, October.
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