International Business Cycles with Endogenous Incomplete Markets

Patrick Kehoe and Fabrizio Perri

No 7870, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Backus, Kehoe and Kydland (1992), Baxter and Crucini (1995) and Stockman and Tesar (1995) find two major discrepancies between standard international business cycle models with complete markets and the data: In the models, cross-country correlations are much higher for consumption than for output, while in the data the opposite is true; and cross-country correlations of employment and investment are negative, while in the data they are positive. This paper introduces a friction into a standard model that helps resolve these anomalies. The friction is that international loans are imperfectly enforceable; any country can renege on its debts and suffer the consequences for future borrowing. To solve for equilibrium in this economy with endogenous incomplete markets, the methods of Marcet and Marimon (1999) are extended. Incorporating the friction helps resolve the anomalies more than does exogenously restricting the assets that can be traded.

Date: 2000-09
Note: EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

Published as Kehoe, Patrick J. and Fabrizio Perri. "International Business Cycles With Endogenous Incomplete Markets," Econometrica, 2002, v70(3,May), 907-928.

Downloads: (external link)
http://www.nber.org/papers/w7870.pdf (application/pdf)

Related works:
Journal Article: International Business Cycles with Endogenous Incomplete Markets (2002)
Working Paper: International business cycles with endogenous incomplete markets (2000)
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:nbr:nberwo:7870

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w7870

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().