Understanding the joint dynamics of international prices and quantities remains a central issue in international business cycles. International relative prices appreciate when domestic consumption and output increase more than their foreign counterparts. In addition, both trade flows and trade...

We find that in a sample of emerging economies business cycles are more volatile than in developed ones, real interest rates are countercyclical and lead the cycle, consumption is more volatile than output and net exports are strongly countercyclical. We present a model of a small open economy,...

This paper is structured in three parts. The first part outlines the methodological steps, involving both theoretical and empirical work, for assessing whether an observed allocation of resources across countries is efficient. The second part applies the methodology to the long-run allocation of...

This paper studies a two country model with traded and nontraded sectors, in which sector-specific capital goods, as in practice, are produced by combining inputs from all sectors. The model also includes nontraded distribution services employed in retailing traded goods to consumers. The...

This chapter is structured in three parts. The first part outlines the methodological steps, involving both theoretical and empirical work, for assessing whether an observed allocation of resources across countries is efficient. The second part applies the methodology to the long-run allocation...

We analyze the second-moment properties of the components of international capital flows and their relationship to business cycle variables (output, investment, and the real interest rate) in 22 industrial and emerging countries. Total inward flows are procyclical with respect to all three macro...

Using formal statistical tests, we detect (i) significant volatility increases for various types of capital flows for a period of changes in business cycle comovement among the G7 countries, and (ii) mixed evidence of changes in covariances and correlations with a set of macroeconomic variables.

This paper investigates the transmission of financial shocks across large economies. To quantify these effects, we estimate a two-region open economy DSGE model that includes frictions in credit markets. The baseline model fails to replicate the high correlation between the U.S. and Euro Area...

The S-shaped cross-correlation function between the trade balance and the terms of trade has been documented for several countries and time frames. The ability of two-country, two-good business cycle models to reproduce this regularity hinges on the dynamics of capital formation. We consider the...

Kehoe and Perri (2002) show that a two-country business cycle model with endogenously incomplete markets helps to resolve the “international comovement puzzle” (Baxter, 1995) and the “quantity anomaly” (Backus et al., 1992, 1995). We claim that a similar performance can be achieved...