Globally correlated nominal fluctuations

Espen Henriksen, Finn Kydland and Roman Sustek

Journal of Monetary Economics, 2013, vol. 60, issue 6, 613-631

Abstract: Fluctuations in nominal variables—aggregate price levels and nominal interest rates—are documented to be substantially more synchronized across countries at business cycle frequencies than fluctuations in real output. A transparent mechanism accounting for this striking feature of the nominal environment is described and quantitatively evaluated. It is based on the interaction between (small) cross-country spillovers of shocks, Taylor rules, and domestic no-arbitrage conditions. The mechanism is robust to various parameterizations and extensions aligning the model with other important aspects of domestic and international fluctuations. Furthermore, its key features are consistent with cross-country forecasts from Consensus survey.

Date: 2013
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Citations: View citations in EconPapers (41)

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Related works:
Working Paper: Globally Correlated Nominal Fluctuations (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:60:y:2013:i:6:p:613-631

DOI: 10.1016/j.jmoneco.2013.05.006

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