Growth and the International Transmission of Business Cycles.

Two-country single-good real business cycle models predict that the cross-country correlation of output is smaller than the cross-country correlations of consumption and productivity, in contrast to the evidence in historical samples. The objective of this paper is to reproduce the observed empirical evidence in a two-country real business cycle model with endogenous growth. Central features of the model include a nonmarket sector and international externalities in production. The model generates realistic cross-country correlations for output, consumption, and productivity with standard parameter values. Copyright 1996 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.