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Globally Correlated Nominal Fluctuations

Listed author(s):
  • Espen Henriksen
  • Finn E. Kydland
  • Roman Sustek

Cyclical fluctuations in nominal variables--aggregate price levels and nominal interest rates--are documented to be substantially more synchronized across countries than cyclical fluctuations in real output. A transparent mechanism that can account for this striking feature of the nominal environment is highlighted. It is based on (small) cross-country spillovers of shocks and an interaction between Taylor rules and no-arbitrage conditions. The mechanism is quantitatively important for a wide range of plausible parameterizations and is found to be robust to modifications of the economic environment that help account for other important features of domestic and international aggregate fluctuations.

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File URL: http://www.nber.org/papers/w15123.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15123.

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Date of creation: Jul 2009
Publication status: published as Henriksen, Espen & Kydland, Finn E. & Å ustek, Roman, 2013. "Globally correlated nominal fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 613-631.
Handle: RePEc:nbr:nberwo:15123
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