International real business cycles: a re-visit

Quoc Hung Nguyen

No 269, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: It is well known that several quantitative properties of international real business cycle models with are at odds with the data. First, the cross-country correlations are much higher for consumption than for output, while in the data the opposite is true (the BKK puzzle). Second, cross-country correlations of employment and investment are negative, while in the data they are positive. This paper quantitatively shows that preferences with a zero income effect on labor supply help generate a correct cross-country correlation in employment even without any restrictions on financial markets. In a bond economy, a zero income effect in labor supply, combined with time-to-build investment, can generate a positive cross-country correlation in investment, and the BKK puzzle is also resolved when the inter-temporal elasticity of substitution in labor supply is low.

Keywords: International real business cycles; Income effects; GHH preferences; Business cycles; International economic relations; Consumption; Investments; Employment (search for similar items in EconPapers)
JEL-codes: E21 E22 E24 E32 F41 F44 (search for similar items in EconPapers)
Date: 2010-12
New Economics Papers: this item is included in nep-bec, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 269. 2010-12

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