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International business cycles with complete markets

Dmitriev, Alexandre; Roberts, Ivan

Description

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...[Show more]

dc.contributor.authorDmitriev, Alexandre
dc.contributor.authorRoberts, Ivan
dc.date.accessioned2015-12-13T22:19:24Z
dc.identifier.issn0165-1889
dc.identifier.urihttp://hdl.handle.net/1885/71778
dc.description.abstractKehoe 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.
dc.publisherElsevier
dc.sourceJournal of Economic Dynamics and Control
dc.subjectKeywords: International business cycles; Time nonseparable preferences; Wealth effects
dc.titleInternational business cycles with complete markets
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume36
dc.date.issued2012
local.identifier.absfor140210 - International Economics and International Finance
local.identifier.ariespublicationf5625xPUB2876
local.type.statusPublished Version
local.contributor.affiliationDmitriev, Alexandre, College of Asia and the Pacific, ANU
local.contributor.affiliationRoberts, Ivan, Reserve Bank of Australia
local.description.embargo2037-12-31
local.bibliographicCitation.issue6
local.bibliographicCitation.startpage862
local.bibliographicCitation.lastpage875
local.identifier.doi10.1016/j.jedc.2011.12.006
dc.date.updated2016-02-24T09:03:14Z
local.identifier.scopusID2-s2.0-84859421212
local.identifier.thomsonID000299878600017
CollectionsANU Research Publications

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