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Intangible Capital Formation, International Equity Investments, and Output Synchronization

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  • Guido Baldi
  • Andre Bodmer

Abstract

We analyze the eects of intangible investment on international out- put synchronization. Using a dynamic stochastic general equilibrium model, we nd that an increase in the importance of intangible cap- ital leads to a higher degree of output comovement across countries. Therefore, countries in which intangible capital is more important are better suited to economic integration, such as forming a monetary union. This oers an insightful perspective on the potential relation between the considerable dierences in intangible capital among Euro- zone members and the discussion surrounding the Eurozone as a sub- optimal currency area. A high stock of intangible capital also tends to attract foreign equity investments, in particular foreign direct in- vestments. We nd that cross-border equity holdings in tangible and intangible capital further increase the degree of output synchroniza- tion. Our results imply that policy reforms to incentivize higher intan- gible capital formation and cross-border equity investments may not only foster economic growth but also improve the functioning of the monetary policy in the Eurozone.

Suggested Citation

  • Guido Baldi & Andre Bodmer, 2018. "Intangible Capital Formation, International Equity Investments, and Output Synchronization," Diskussionsschriften dp1810, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp1810
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    More about this item

    Keywords

    International Business Cycles; Investment; Cross-country Correlations; Intangible Capital;
    All these keywords.

    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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