International Real Business Cycles

TLDR

The study investigates whether a two‑country real business cycle model can simultaneously explain domestic and international business‑cycle dynamics. The authors identify several discrepancies between the model’s predictions and empirical data. The model predicts higher cross‑country consumption correlation than output, whereas the data show the opposite, with output more correlated across countries.

Abstract

We ask whether a two-country real business cycle model can account simultaneously for domestic and international aspects of business cycles. With this question in mind, we document a number of discrepancies between theory and data. The most striking discrepancy concerns the correlations of consumption and output across countries. In the data, outputs are generally more highly correlated across countries than consumptions. In the model we see the opposite.