Globally Correlated Nominal Fluctuations
Cyclical fluctuations in nominal variables--aggregate price levels and nominal interest rates--are documented to be substantially more synchronized across countries than cyclical fluctuations in real output. A transparent mechanism that can account for this striking feature of the nominal environment is highlighted. It is based on (small) cross-country spillovers of shocks and an interaction between Taylor rules and no-arbitrage conditions. The mechanism is quantitatively important for a wide range of plausible parameterizations and is found to be robust to modifications of the economic environment that help account for other important features of domestic and international aggregate fluctuations.
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Copy CitationEspen Henriksen, Finn E. Kydland, and Roman Sustek, "Globally Correlated Nominal Fluctuations," NBER Working Paper 15123 (2009), https://doi.org/10.3386/w15123.
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Published Versions
Henriksen, Espen & Kydland, Finn E. & Å ustek, Roman, 2013. "Globally correlated nominal fluctuations," Journal of Monetary Economics, Elsevier, vol. 60(6), pages 613-631. citation courtesy of