TY  - JOUR
AU  - Stockman,Alan C.
AU  - Tesar,Linda L.
TI  - Tastes and Technology in a Two-Country Model of the Business Cycle:     Explaining International Comovements
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 3566
PY  - 1995
Y2  - June 1995
UR  - http://www.nber.org/papers/w3566
L1  - http://www.nber.org/papers/w3566.pdf
N1  - Author contact info:
Alan C. Stockman
Department of Economics
University of Rochester
Rochester, NY  14627-0156
Tel: 585/275-7214
Fax: 585/256-2309
E-Mail: N/A user is deceased

Linda Tesar
Department of Economics
University of Michigan
Ann Arbor, MI  48109-1220
Tel: 734/763 6015
Fax: 734/764-2769
E-Mail: ltesar@umich.edu
AB  - This paper studies the international transmission of business cycles by developing a two-country real business-cycle model and confronting it with a broad set of empirical observations. These observations include variances and covariances of output, labor, consumption, employment, and investment in traded and nontraded sectors of the economy, cross-country correlations of output and consumption, and correlations between quantities and relative prices. We find that technology shocks as measured by observed total factor productivity (by sector) must be supplemented by other sources of disturbances to explain certain features of the data. We call these other disturbances taste shocks, though they may stand in for some other shocks. In particular, it is difficult to explain the observed comovements of the relative price of nontraded to traded goods with the relative consumption of those goods without invoking something like taste shocks. Our model is roughly consistent with a broad set of observations, though puzzles emerge regarding the correlation of nontraded-sector output with its relative price and the variance of the balance of trade.
ER  -