International business cycles with complete markets
Date
2012
Authors
Dmitriev, Alexandre
Roberts, Ivan
Journal Title
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Volume Title
Publisher
Elsevier
Abstract
Kehoe and Perri (2002) show that a two-country business cycle model with endogenously incomplete markets helps to resolve the "international comovement puzzle" (. Baxter, 1995) and the "quantity anomaly" (. Backus et al., 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 alone can account for the "international comovement puzzle". Our model features time nonseparable preferences that allow arbitrarily small wealth effects on labor supply. It matches the data by predicting (i) positive cross-country correlations of investment and hours worked; (ii) realistic cross-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 international markets, ours show little sensitivity to the parameterization of the forcing process.
Description
Keywords
Keywords: International business cycles; Time nonseparable preferences; Wealth effects
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Source
Journal of Economic Dynamics and Control
Type
Journal article
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Restricted until
2037-12-31