## Cointegrated TFP Processes and International Business Cycles

_IMF Working Papers, September 1, 2009_

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**Canonical URL:** [Cointegrated TFP Processes and International Business Cycles](https://www.imf.org/en/publications/wp/issues/2016/12/31/cointegrated-tfp-processes-and-international-business-cycles-23309)

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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

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### 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).*

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/cointegrated-tfp-processes-and-international-business-cycles-23309_