International medium-term business cycles

Dominik Hirschbühl and Martin Spitzer

No 2536, Working Paper Series from European Central Bank

Abstract: Foreign driven medium-term oscillations that originate from fluctuations in technological frontier countries gained widespread attention among policymakers. To study this phenomenon in the context of domestic and other foreign drivers of the euro area business cycle, we develop a medium-scale, two-economy dynamic stochastic general equilibrium model with endogenous growth and estimate it with Bayesian methods for the United States and the euro area for the period from 1984:Q1 to 2017:Q4. The framework suggests that foreign shocks can be a substantial source of medium-term oscillations that contribute to pro-cyclicality of real GDP across countries. Notably, US shocks to liquidity preference and trade demand explain more than a third of the euro area downturn during the Great Recession. JEL Classification: E2, E5, F1, F4, O4

Keywords: Bayesian estimation; endogenous growth; R&D; resilience; two-economy DSGE (search for similar items in EconPapers)
Date: 2021-04
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
Note: 626509
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20212536

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