Cointegrated TFP Processes and International Business Cycles

Author/Editor:

Vicente Tuesta ; Juan F. Rubio-Ramirez ; Pau Rabanal

Publication Date:

September 1, 2009

Electronic Access:

Download PDF. Use the free Adobe Acrobat Reader to view this PDF file

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.

Series:

Working Paper No. 09/212

Subject:

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 Real exchange rates Spillovers

English

Publication Date:

September 1, 2009

ISBN/ISSN:

9781451873597/1018-5941

Stock No:

WPIEA2009212

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

54

Please address any questions about this title to publications@imf.org