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International R&D Spillovers and Asset Prices

Ana Maria Santacreu and Federico Gavazzoni ()

No 405, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We document that international R&D spillovers through trade in varieties is a major driver of asset prices. We find that country pairs that share more R&D have more correlated stock market returns and less volatile exchange rates. Moreover, we show that countries that depend more heavily on their trading partner's R&D have currencies that tend to pay a positive excess return. We develop an endogenous growth model of innovation and international technology diffusion that rationalizes our empirical findings. A calibrated version of our model matches several important asset pricing and quantity moments, thus alleviating several of the classic quantity-price puzzles of the international macroeconomic literature.

Date: 2015
New Economics Papers: this item is included in nep-cse, nep-dge and nep-ino
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Working Paper: International R&D Spillovers and Asset Prices (2015)
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