NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Business Cycles and the Asset Structure of Foreign Trade

Marianne Baxter, Mario J. Crucini

NBER Working Paper No. 4975
Issued in December 1994
NBER Program(s):   IFM

International financial market linkages are widely believed to be important for the international transmission of business cycles, since these govern the extent to which individuals can smooth consumption in the presence of country-specific shocks to income. This paper develops a two-country, general equilibrium model with restricted asset trade and provides a detailed analysis of the channels through which these financial linkages affect international business cycles. Our central finding is that the absence of complete financial integration may not be important if the shocks to national economies are of low persistence, or are transmitted rapidly across countries over time. However, if shocks are highly persistent or are not transmitted internationally, the extent of financial integration is central to the international transmission of business cycles.

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Document Object Identifier (DOI): 10.3386/w4975

Published: International Economic Review, Nov 1995 citation courtesy of

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