Explaining International Comovements of Output and Asset Returns: The Role of Money and Nominal Rigidities

50 Pages Posted: 9 Feb 2006

See all articles by Robert Kollmann

Robert Kollmann

ECARES, Université Libre de Bruxelles; University of Paris XII - Department of Economics; Centre for Economic Policy Research (CEPR)

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Date Written: June 1999

Abstract

Empirically, output and asset returns are highly positively correlated across the United States and the other major industrialized countries. Standard business cycle models that assume flexible prices and wages, in the Real Business Cycle tradition, have great difficulties explaining this fact. This paper presents a dynamic-optimizing stochastic general equilibrium model of a two-country world with sticky nominal prices and wages and a flexible exchange rate. The structure here predicts positive international transmission of country-specific monetary policy and technology shocks, and it generates sizable cross-country correlations of output and of asset returns.

Keywords: Cross-country correlation of output and asset returns, money, nominal rigidities, international transmission of business cycles

JEL Classification: E44, F3, F4

Suggested Citation

Kollmann, Robert, Explaining International Comovements of Output and Asset Returns: The Role of Money and Nominal Rigidities (June 1999). IMF Working Paper No. 99/84, Available at SSRN: https://ssrn.com/abstract=880611

Robert Kollmann (Contact Author)

ECARES, Université Libre de Bruxelles ( email )

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University of Paris XII - Department of Economics ( email )

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Creteil cedex, 94010
France

HOME PAGE: http://www.robertkollmann.com

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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