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Author: | Guo, J. Sturzenegger, F. |
Title: | Crazy explanations of international business cycles |
Journal: | International Economic Review
1998 : FEB, VOL. 39:1, p. 111-134 |
Index terms: | ECONOMICS INTERNATIONAL BUSINESS CYCLES |
Language: | eng |
Abstract: | International real business cycle models have been unable to provide a good explanation for the consumption-output anomaly: in theoretical economies, consumption is more strongly correlated across countries than is output, whereas the opposite is the case in the data. This paper examines an increasing returns-to-scale model in which the economy is subject to "belief" shocks that affect the consumption Euler equations rather than productivity. Under the assumption that there are no contingent claim markets on the realization of "sunspots", the belief-driven model cam account for the consumption-output anomaly even with a separable period utility function. |
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