The International Transmission of Real Business Cycles
Résumé
This paper develops a simple one-sector, two-country equilibrium model which accounts for the relatively low cross-country consumption correlations without damaging the areas of success of existing models. This improvement arises from the modification of the consumption index in order to add public consumption to private consumption in the preferences of the agents, which allows shocks to government purchases to alter the marginal utility of consumption. This model explains quite well both the high correlation between saving and investment and the counter-cyclically of net exports. However, only a strong cross-correlation of home and foreign technology shocks enables the model to mimic the crosscountry correlation of output.