Some Puzzles on International Comovements: The Role of International Trade and the Structure of the Banking Industry

Maria Pia Olivero

No 188, 2004 Meeting Papers from Society for Economic Dynamics

Abstract: This paper finds a solution to some of the discrepancies between the data and what standard complete markets models predict. Specifically, those related to the cross-country correlations of consumption, output and factors of production. I match the data and get positive cross country comovements of investment and employment, and a cross-country correlation of consumption lower than that of output. I do this through the introduction of a “demand channel†given by trade in goods, credit market frictions and a non-competitive banking industry, into an otherwise standard two-country RBC model. In this model financial flows international mobility is reduced appealing to arbitrage arguments that guide saving decisions in a decentralized economy. Equity flows are not allowed in this setup

Keywords: international trade; banking; puzzles (search for similar items in EconPapers)
JEL-codes: E3 F4 (search for similar items in EconPapers)
Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed004:188

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