Understanding the Persistence Properties of International Macroeconomic Aggregates

In this paper, the ability of a two-country model of growth and cycles is evaluated to explain the persistence properties of output and consumption across countries. Simulated output and consumption levels replicate the observed appearance of noncointegration across countries. Simulated output growth rates, however, do not explain the observed positive serial correlation of output growth rates. The reallocation of resources in response to technology shocks generates a negative serial correlation for output growth rates.