The Federal Reserve Board eagle logo links to Board's home page

International Finance Discussion Papers
The International Finance Discussion Papers logo links to the International Finance Discussion Papers home page Technology Shocks: Novel Implications for International Business Cycles
Andrea Raffo
2010-992  (January 2010)

Abstract:  Understanding the joint dynamics of international prices and quantities remains a central issue in international business cycles. International relative prices appreciate when domestic consumption and output increase more than their foreign counterparts. In addition, both trade flows and trade prices display sizable volatility. This paper incorporates Hicks-neutral and investment-specific technology shocks into a standard two-country general equilibrium model with variable capacity utilization and weak wealth effects on labor supply. Investment-specific technology shocks introduce a source of fluctuations in absorption similar to taste shocks, thus reconciling theory and data. The paper also presents implications for the transmission mechanism of technology shocks across countries and for the Barro and King (1984) critique of investment shocks.

Full paper (898 KB PDF) | Full paper (screen reader version)

Backus-Smith puzzle, investment-specific technology shocks, international business cycles

PDF files: Adobe Acrobat Reader   ZIP files: PKWARE

Home | IFDPs | List of 2010 IFDPs
Accessibility | Contact Us
Last update: March 3, 2010