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International business cycles with complete markets


Dmitriev, A and Roberts, I, International business cycles with complete markets, Journal of Economic Dynamics and Control, 36, (6) pp. 862-875. ISSN 0165-1889 (2012) [Refereed Article]

Copyright Statement

Copyright 2012 Elsevier B.V.

DOI: doi:10.1016/j.jedc.2011.12.006


KehoeandPerri(2002) show that a two-country business cycle model with endogen- ously incomplete markets helps to resolve the‘‘international comovement puzzle’’ (Baxter, 1995) and the‘‘quantityanomaly’’(Backus etal.,1992, 1995). We claim that a similar performance can be achieved without resorting to market incompleteness. We show that a model with complete markets driven by productivity shocks alonecan account for the ‘‘internationalcomovementpuzzle’’. Our model features time nonseparable preferences tha tallow arbitrarily small wealth effects on labor supply. It matches the data by predicting(i)positivecross-country correlations of investment and hoursworked;(ii)realisticcross-country correlations of consumption. It reduces the gap between international correlations of output and consumption,but fails to change their order.Unlike models with restricted nternational markets,ours show little sensitivity to the parameterization of the forcing process.

Item Details

Item Type:Refereed Article
Keywords:Time nonseparable preferences, Wealth effects, International business cycles
Research Division:Economics
Research Group:Applied economics
Research Field:Macroeconomics (incl. monetary and fiscal theory)
Objective Division:Economic Framework
Objective Group:Macroeconomics
Objective Field:Fiscal policy
UTAS Author:Dmitriev, A (Dr Alexandre Dmitriev)
ID Code:83254
Year Published:2012
Web of Science® Times Cited:9
Deposited By:Economics and Finance
Deposited On:2013-03-06
Last Modified:2014-12-20

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