Globally Correlated Nominal Fluctuations

46 Pages Posted: 21 Jul 2009 Last revised: 30 Jul 2009

See all articles by Espen Henriksen

Espen Henriksen

Department of Financial Economics, BI Norwegian Business School

Finn Kydland

Carnegie Mellon University - David A. Tepper School of Business; Norwegian School of Economics (NHH) - Department of Economics

Roman Sustek

Bank of England - Monetary Assessment and Strategy Division

Date Written: July 2009

Abstract

Cyclical fluctuations in nominal variables--aggregate price levels and nominal interest rates--are documented to be substantially more synchronized across countries than cyclical fluctuations in real output. A transparent mechanism that can account for this striking feature of the nominal environment is highlighted. It is based on (small) cross-country spillovers of shocks and an interaction between Taylor rules and no-arbitrage conditions. The mechanism is quantitatively important for a wide range of plausible parameterizations and is found to be robust to modifications of the economic environment that help account for other important features of domestic and international aggregate fluctuations.

Suggested Citation

Henriksen, Espen and Kydland, Finn E. and Sustek, Roman, Globally Correlated Nominal Fluctuations (July 2009). NBER Working Paper No. w15123, Available at SSRN: https://ssrn.com/abstract=1434637

Espen Henriksen (Contact Author)

Department of Financial Economics, BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Finn E. Kydland

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States
412 268-3691 (Phone)
412 268-7357 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Roman Sustek

Bank of England - Monetary Assessment and Strategy Division ( email )

Threadneedle Street
London EC2R 8AH
United Kingdom

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