This paper examines whether the introduction of government consumption expenditure in a standard one good model of the international real business cycle is sufficient to reconcile the theory with the existing pattern of international consumption and output correlations. I calibrate the model to...

I study potentials and gaps, permanent and transitory fluctuations in macroeconomic variables using the Smets and Wouter (2007) model. Model-based gaps display low frequency variations; possess more than business cycle fluctuations; have similar frequency representation as potentials, and are...