By force of demand: explaining international comovements and the saving-investment correlation puzzle

Yi Wen

No 2005-043, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper explores the possibility that economic fluctuations may be largely demand-driven. It is shown that the stylized open-economy business cycle regularities documented by Feldstein and Horioka (1980) and Backus, Kehoe and Kydland (1992) can be explained by demand shocks alone even in a standard general equilibrium model. Frictions such as market incompleteness, increasing returns to scale, and sticky prices do not appear to be the preconditions for resolving these long-standing puzzles.

Keywords: Business cycles; Saving and investment (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dge and nep-mac
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