Explaining International Comovements of Output and Asset Returns: The Role of Money and Nominal Rigidities

Author/Editor:

Robert Miguel W. K. Kollman

Publication Date:

June 1, 1999

Electronic Access:

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Summary:

Empirically, output and asset returns are highly positively correlated across the United States and the other major industrialized countries. Standard business cycle models that assume flexible prices and wages, in the Real Business Cycle tradition, have great difficulties explaining this fact. This paper presents a dynamic-optimizing stochastic general equilibrium model of a two-country world with sticky nominal prices and wages and a flexible exchange rate. The structure here predicts positive international transmission of country-specific monetary policy and technology shocks, and it generates sizable cross-country correlations of output and of asset returns.

Series:

Working Paper No. 1999/084

Subject:

Currencies Economic theory Exchange rates Foreign exchange Monetary base Money Prices Sticky prices Supply shocks

English

Publication Date:

June 1, 1999

ISBN/ISSN:

9781451850628/1018-5941

Stock No:

WPIEA0841999

Pages:

50

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