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Cointegrated TFP Processes and International Business Cycles

Author/Editor: Rabanal, Pau | Rubio-Ramirez, Juan F. | Tuesta, Vicente
Authorized for Distribution: September 1, 2009
Electronic Access: Free Full Text (PDF file size is 955KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: A puzzle in international macroeconomics is that observed real exchange rates are highly volatile. Standard international real business cycle (IRBC) models cannot reproduce this fact. We show that TFP processes for the U.S. and the "rest of the world," is characterized by a vector error correction (VECM) and that adding cointegrated technology shocks to the standard IRBC model helps explaining the observed high real exchange rate volatility. Also we show that the observed increase of the real exchange rate volatility with respect to output in the last 20 year can be explained by changes in the parameter of the VECM.
 
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Series: Working Paper No. 09/212
Subject(s): Business cycles | Consumer goods | Demand | Economic models | Exchange rates | External shocks | Industrial production | International trade | Price elasticity | Prices | Private consumption | Productivity | Real effective exchange rates | Spillovers
Author's keyword(s): International Business Cycles | Real Exchange Rates | Cointegration
 
English  
    Published:   September 1, 2009        
            Format:   Paper
    Stock No:   WPIEA2009212   Pages:   54
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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