Modeling News-Driven International Business Cycles

Paul Beaudry (), Martial Dupaigne () and Franck Portier ()

Review of Economic Dynamics, 2011, vol. 14, issue 1, pages 72-91

Abstract: This paper reexamines the question of how to explain business cycle co-movements within and between countries. First, we present a simple flexible price models to illustrate how and why news shocks can generate robust positive co-movements in economic activity across countries. We also discuss under what conditions a two-sector version of the model generates appropriate business cycle patterns within countries. Second, we develop a quantitative two-country two-sector model that is capable of replicating news driven international business cycles. The model is a two-country extension of the closed economy model of Beaudry & Portier [2004], in which there are limited possibilities to reallocate factors between investment and consumption good sectors. (Copyright: Elsevier)

Keywords: Business cycles; Expectations; International fluctuations; News shocks (search for similar items in EconPapers)
JEL-codes: E32 F41 (search for similar items in EconPapers)
Date: 2011
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Working Paper: Modeling News-Driven International Business Cycles (2009)
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