Financial frictions, interest rate dynamics, and international business cycle synchronization

Jean-François Rouillard

Review of International Economics, 2018, vol. 26, issue 2, 279-301

Abstract: A two‐country real business cycle model with national endogenous borrowing constraints and working capital requirements can account for the high level of international co‐movements. The effects of technology shocks are transmitted internationally through the dynamics of the interest rate. Specifically, the borrowing mechanism brings about a wedge between the real interest rate and the expected marginal product of capital, such that interest rates fall following positive technology shocks. A lower interest rate induces more investment by Foreign firms, which in turn contribute to greater synchronization of economic activities across countries. Moreover, terms of trade amplify the effects of technology shocks.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://doi.org/10.1111/roie.12326

Related works:
Working Paper: Financial frictions, interest rate dynamics, and international business cycle synchronization (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:reviec:v:26:y:2018:i:2:p:279-301

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0965-7576

Access Statistics for this article

Review of International Economics is currently edited by E. Kwan Choi

More articles in Review of International Economics from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().