Cointegrated TFP Processes and International Business Cycles
IMF Working Papers, September 1, 2009
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- Cointegrated TFP Processes and International Business Cycles
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Bibliographic details
- Authors: Vicente Tuesta, Juan F. Rubio-Ramirez, Pau Rabanal
- Published: September 1, 2009
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451873597.001
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.
- The paper shows that TFP processes for the U.S. and the "rest of the world," is characterized by a vector error correction (VECM).
- Adding cointegrated technology shocks to the standard IRBC model helps explain the observed high real exchange rate volatility.
- 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.
Major Themes and Concepts
- Total factor productivity (TFP) processes for the U.S. and the "rest of the world"
- Vector error correction models (VECM) characterization of TFP
- Cointegrated technology shocks as an augmentation to the IRBC framework
- Real exchange rate volatility and its relationship to output volatility
- Explanation of increased real exchange rate volatility over the last 20 year via VECM parameter changes
Key Subjects and Keywords
- Subject: Consumption, Real exchange rates, Sustainable growth, Total factor productivity, Vector error correction models
- Keywords: exchange rate, standard deviation, WP
IMF Working Paper — "Cointegrated TFP Processes and International Business Cycles", Working Paper No. 2009/212 (September 1, 2009).