Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

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.

Foreign Exchange --- Macroeconomics --- Money and Monetary Policy --- Economic Theory --- Financial Markets and the Macroeconomy --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Price Level --- Inflation --- Deflation --- Agriculture: Aggregate Supply and Demand Analysis --- Prices --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Monetary economics --- Economic theory & philosophy --- Currency --- Foreign exchange --- Monetary base --- Sticky prices --- Supply shocks --- Currencies --- Exchange rates --- Money --- Economic theory --- Money supply --- Supply and demand --- United States

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

This paper develops a new empirical framework for analyzing the dynamics of the trade balance in response to different types of macroeconomic shocks. The model provides a synthetic perspective on the conditional correlations between the business cycle and the trade balance that are generated by different shocks and attempts to reconcile these results with unconditional correlations found in the data. The results suggest that, in the post-Bretton Woods period, nominal shocks have been an important determinant of the forecast error variance for fluctuations in the trade balances of the Group of Seven countries.

Exports and Imports --- Foreign Exchange --- Macroeconomics --- Economic Theory --- Empirical Studies of Trade --- Business Fluctuations --- Cycles --- Open Economy Macroeconomics --- Agriculture: Aggregate Supply and Demand Analysis --- Prices --- Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) --- International economics --- Currency --- Foreign exchange --- Economic theory & philosophy --- Economic growth --- Trade balance --- Real exchange rates --- Supply shocks --- Exchange rates --- Business cycles --- International trade --- Economic theory --- Balance of trade --- Supply and demand --- United States