Cointegrated TFP processes and international business cycles

Pau Rabanal, Juan F Rubio-Ramirez and Vicente Tuesta

No 2009-23, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: A puzzle in international macroeconomics is that observed real exchange rates are highly volatile. Standard international real business cycle (IRBC) models cannot reproduce this fact. We show that total factor productivity processes for the United States and the rest of the world are characterized by a vector error correction model (VECM) and that adding cointegrated technology shocks to the standard IRBC model helps explaining the observed high real exchange rate volatility. Also, we show that the observed increase of the real exchange rate volatility with respect to output in the past twenty years can be explained by changes in the parameter of the VECM.

Date: 2009
New Economics Papers: this item is included in nep-cba and nep-dge
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Related works:
Journal Article: Cointegrated TFP processes and international business cycles (2011)
Working Paper: Cointegrated TFP Processes and International Business Cycles (2010)
Working Paper: Cointegrated TFP Processes and International Business Cycles (2009)
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