Explaining international comovements of output and asset returns: The role of money and nominal rigidities
✍ Scribed by Robert Kollmann
- Publisher
- Elsevier Science
- Year
- 2001
- Tongue
- English
- Weight
- 319 KB
- Volume
- 25
- Category
- Article
- ISSN
- 0165-1889
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✦ Synopsis
Output and asset returns are highly positively correlated across the U.S. and the remaining major industrialized countries. Standard business cycle models that assume #exible prices and wages, in the real business cycle (RBC) tradition, have great di$culties explaining this fact. This paper presents a dynamic-optimizing stochastic general equilibrium model of a two-country world with sticky nominal prices and wages. The structure here generates cross-country correlations of output and returns that are markedly higher, and hence closer to the data, than the cross-country correlations that obtain when #exible prices and wages are assumed.