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International Business Cycles: Theory and Evidence

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  • David K. Backus
  • Patrick J. Kehoe
  • Finn E. Kydland

Abstract

We review recent work comparing properties of international business cycles with those of dynamic general equilibrium models, emphasizing two discrepancies between theory and data that we refer to as anomalies. The first is the consumption/output/productivity anomaly: in the data we generally find that the correlation across countries of output fluctuations is larger than the analogous consumption and productivity correlations. In theoretical economies we find, for a wide range of parameter values, that the consumption correlation exceeds the productivity and output correlations. The second anomaly concerns relative price movements: the standard deviation of the terms of trade is considerably larger in the data than it is in theoretical economies. We speculate on changes in theoretical structure that might bring theory and data closer together.
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Suggested Citation

  • David K. Backus & Patrick J. Kehoe & Finn E. Kydland, 1993. "International Business Cycles: Theory and Evidence," Working Papers 93-21, New York University, Leonard N. Stern School of Business, Department of Economics.
    • Handle: RePEc:ste:nystbu:93-21
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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F30 - International Economics - - International Finance - - - General

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