Working Paper 426

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International Real Business Cycles

David K. Backus
Patrick J. Kehoe
Finn E. Kydland

Revised October 1, 1991

We ask whether a two-country real business cycle model can account simultaneously for domestic and international aspects of business cycles. With this question in mind, we document a number of discrepancies between theory and data. The most striking discrepancy concerns the correlations of consumption and output across countries. In the data, outputs are generally more highly correlated across countries than consumptions. In the model we see the opposite.

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