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Technology shocks: novel implications for international business cycles

Andrea Raffo ()

No 992, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Understanding the joint dynamics of international prices and quantities remains a central issue in international business cycles. International relative prices appreciate when domestic consumption and output increase more than their foreign counterparts. In addition, both trade flows and trade prices display sizable volatility. This paper incorporates Hicks-neutral and investment-specific technology shocks into a standard two-country general equilibrium model with variable capacity utilization and weak wealth effects on labor supply. Investment-specific technology shocks introduce a source of fluctuations in absorption similar to taste shocks, thus reconciling theory and data. The paper also presents implications for the transmission mechanism of technology shocks across countries and for the Barro and King (1984) critique of investment shocks.

Keywords: Business cycles; International trade (search for similar items in EconPapers)
Date: 2010, Revised 2010
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-opm
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Related works:
Working Paper: Technology Shocks: Novel Implications for International Business Cycles (2010) Downloads
Working Paper: Technology Shocks: Novel Implications for International Business Cycles (2008) Downloads
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