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Modeling News-Driven International Business Cycles

  • Beaudry, Paul
  • Dupaigne, Martial
  • Portier, Franck

This paper reexamines the question of how to explain business cycle co-movements within and between countries. First, we present two simple theoretically flexible price models to illustrate how and why news shocks can generate robust positive co-movements in economic activity across countries. We also discuss under what conditions the multi-sector version of the model generates appropriate business cycle patterns within countries. Second, we develop a quantitative two-country multi-sector model that is capable of replicating many international business cycle facts. The model is a two-country extension of the closed economy model of Beaudry and Portier [2004], in which there are limited possibilities to reallocate factors between investment and consumption good sectors.

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Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 09-117.

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Date of creation: Nov 2009
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Handle: RePEc:tse:wpaper:22242
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  1. Nir Jaimovich & Sergio Rebelo, 2009. "Can News about the Future Drive the Business Cycle?," American Economic Review, American Economic Association, vol. 99(4), pages 1097-1118, September.
  2. Beaudry, Paul & Collard, Fabrice & Portier, Franck, 2011. "Gold rush fever in business cycles," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 84-97, March.
  3. Beaudry, Paul & Portier, Franck, 2007. "When can changes in expectations cause business cycle fluctuations in neo-classical settings?," Journal of Economic Theory, Elsevier, vol. 135(1), pages 458-477, July.
  4. Paul Beaudry & Franck Portier, 2005. "The "News" View of Economic Fluctuations: Evidence from Aggregate Japanese Data and Sectoral U.S. Data," NBER Working Papers 11496, National Bureau of Economic Research, Inc.
  5. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2003. "International risk-sharing and the transmission of productivity shocks," Working Papers 03-19, Federal Reserve Bank of Philadelphia.
  6. Den Haan, Wouter & Kaltenbrunner, Georg, 2007. "Anticipated Growth and Business Cycles in Matching Models," CEPR Discussion Papers 6063, C.E.P.R. Discussion Papers.
  7. Haertel, Thomas & Lucke, Bernd, 2007. "New Evidence on News-Driven Business Cycles," Economics Discussion Papers 2007-27, Kiel Institute for the World Economy.
  8. Paul Beaudry & Bernd Lucke, 2009. "Letting Different Views about Business Cycles Compete," NBER Working Papers 14950, National Bureau of Economic Research, Inc.
  9. Backus, David K & Kehoe, Patrick J & Kydland, Finn E, 1994. "Dynamics of the Trade Balance and the Terms of Trade: The J-Curve?," American Economic Review, American Economic Association, vol. 84(1), pages 84-103, March.
  10. Beaudry, Paul & Portier, Franck, 2004. "An exploration into Pigou's theory of cycles," Journal of Monetary Economics, Elsevier, vol. 51(6), pages 1183-1216, September.
  11. Martial Dupaigne & Franck Portier & Paul Beaudry, 2007. "The International Propagation of News Shocks," 2007 Meeting Papers 251, Society for Economic Dynamics.
  12. Nir Jaimovich & Sergio Rebelo, 2007. "News and Business Cycles in Open Economies," NBER Working Papers 13444, National Bureau of Economic Research, Inc.
  13. Ambler, Steve & Cardia, Emanuela & Zimmermann, Christian, 2004. "International business cycles: What are the facts?," Journal of Monetary Economics, Elsevier, vol. 51(2), pages 257-276, March.
  14. Kydland, Finn E & Prescott, Edward C, 1982. "Time to Build and Aggregate Fluctuations," Econometrica, Econometric Society, vol. 50(6), pages 1345-70, November.
  15. Robert B. Barsky & Eric R. Sims, 2009. "News Shocks," NBER Working Papers 15312, National Bureau of Economic Research, Inc.
  16. Wen, Yi, 2007. "By force of demand: Explaining international comovements," Journal of Economic Dynamics and Control, Elsevier, vol. 31(1), pages 1-23, January.
  17. Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
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