Globally Correlated Nominal Fluctuations

53 Pages Posted: 5 Oct 2013

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: March 29, 2012

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 modi cations of the economic environment that help account for other important features of domestic and international aggregate fluctuations.

Keywords: International fluctuations, prices, interest rates

JEL Classification: E31, E32, E43, F41

Suggested Citation

Henriksen, Espen and Kydland, Finn E. and Sustek, Roman, Globally Correlated Nominal Fluctuations (March 29, 2012). Journal of Monetary Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2334294 or http://dx.doi.org/10.2139/ssrn.2334294

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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