Journal Article

Finance and International Business Cycles

Journal of Monetary Economics

Business cycles are more correlated among countries that have similar financial structures. We

first document this empirical regularity using OECD data, and then build a two-country DSGE

model with financial frictions that replicates it. Alternative monetary policy regimes and parameter values are explored. Output co-movements increase when the countries involved are linked by a credible exchange rate peg and when they open up to trade; they decrease when their financial openness increases. The model also accounts for a number of stylized facts of international business cycles, such as the positive international correlation of output, investment and employment.

Author

Ester Faia

Info

Publication Date
JEL Classification
E3, E42, E44, E52, F41