Staggered Wages, Financial Frictions, and the International Comovement Problem
Standard international real business cycle models often generate negative cross-country correlations in labor and investment. The data, however, display positive correlations. This paper studies the effect of real wage rigidity and financial frictions on international comovement. We find that staggered wages mainly improve the cross-country correlation of labor, while financial frictions improve investment comovement. However, each friction alone cannot account for the magnitude of international correlations of either variable. When the two imperfections are introduced together, the effect of each friction endogenously reinforces the other and the model generates realistic correlations in both variables. (Copyright: Elsevier)
International real business cycles; Staggered wages; Comovement; Incomplete financial markets
In order to set up a list of libraries that you have access to,
you must first login
or sign up.
Then set up a personal list of libraries from your profile page by
clicking on your user name at the top right of any screen.