News-driven international business cycles

Kosaka Michiru Sakane ()
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Kosaka Michiru Sakane: Faculty of Liberal Arts, Sophia University, 7-1, Kioi-cho, Chiyoda-Ku, Tokyo, 102-8554 Japan

The B.E. Journal of Macroeconomics, 2013, vol. 13, issue 1, 751-793

Abstract: This paper examines the international transmission effects of news about the total factor productivity (TFP) in the US on the Canadian and Japanese economies. I develop and estimate a two-country real business cycle model to generate booms in Canadian and Japanese variables in response to news about future US TFP. I find that international macroeconomic comovements can be generated by news about the future TFP in the US. Unlike previous studies, I show that the response of the Canadian or Japanese TFP to a US news shock is important for generating the boom observed in the empirical analysis. The estimated preference parameters indicate that eliminating the wealth effect on hours worked is important. I also show that a low elasticity of substitution between domestically and foreign-produced intermediate goods can also help explain the domestic boom created by a news shock.

Keywords: international business cycles; news; total factor productivity (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (6)

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DOI: 10.1515/bejm-2012-0115

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