Abstract
This paper contributes to the ongoing debate on the causes of international co-movements of macroeconomic variables. In particular, existing real business cycle models predict cross-country consumption correlations to be higher than in the actual data, cross-country output correlations to be lower than in the actual data, and cross-country consumption correlations to be relatively higher than the output correlations. We show that cross-country correlations of consumption, investment, employment and output predicted by a standard international real business cycle model are highly sensitive to the share of capital goods in total trade. Our calibrated model shows that when capital goods account for a share of total traded goods greater than 50%, the apparent discrepancy between the data and the simulations is resolved.
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Notes
See also Baxter (1995).
Here we show our model as a competitive equilibrium rather than a planner’s problem because of the insight it can provide.
We have calibrated our model to the US data, so that it can be compared to other studies such as Boileau (2002).
This is likely because he allows the output share of trade to vary depending on the share of capital goods, therefore pure effects of capital goods on transmission of productivity shocks are unclear.
To verify, we have tested our simulation outputs using the Augmented Dickey–Fuller test and found that all the outputs are stationary based on the 1% level of MacKinnon critical value. Note that even when we apply the HP filter, our key findings do not change except that \(\rho _{cc^{\ast }}\) falls below \(\rho _{yy^{\ast }}\) at η = 0.50 and falls below zero at η ≥ 0.7.
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Acknowledgements
We thank Leo Michelis for his comments on an earlier version of this paper. We also thank the anonymous referee for his/her helpful feedback.
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Yoshimine, K., Barbiero, T.P. Trade in Capital Goods and International Co-movements of Macroeconomic Variables. Open Econ Rev 20, 113–122 (2009). https://doi.org/10.1007/s11079-007-9053-5
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DOI: https://doi.org/10.1007/s11079-007-9053-5