"News" Shocks in International Business Cycles

Martial Dupaigne () and Franck Portier ()

No 473, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: This paper studies co-movement in economic aggregates at the national and international level. At the national level, consumption, investment and hours worked display positive co-movement across the business cycle. Technology shocks, which directly affect the real wage rate, can drive consumption and hours worked in the same direction although consumption and leisure are both normal goods. At the international level, business cycles are substantially synchronized. The well-known first order effect of a technology shock is to reallocate production factor across countries, leading to strong negative co-movements between investments or between outputs. Such predictions are at odds with observed international fluctuations. We investigate whether observed co-movements can be accounted for by the changes in expectations emphasized in Beaudry & Portier [2004,2005]. Previous results have established the conditions under which expectations-driven business cycle fluctuations may arise in neo-classical settings, namely a cost complementarity. We extend this complementarity to a multi-country model, and show that they can lead to international expectations-driven business cycles.

Keywords: Macro; International Business Cycles; News Shocks (search for similar items in EconPapers)
JEL-codes: E32 F41 (search for similar items in EconPapers)
Date: 2006-12-03

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Persistent link: http://EconPapers.repec.org/RePEc:red:sed006:473

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