Cointegrated TFP Processes and International Business Cycles

By Vicente Tuesta, Juan F. Rubio-Ramirez, Pau Rabanal

September 1, 2009

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Vicente Tuesta, Juan F. Rubio-Ramirez, and Pau Rabanal. Cointegrated TFP Processes and International Business Cycles, (USA: International Monetary Fund, 2009) accessed December 3, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

A puzzle in international macroeconomics is that observed real exchange rates are highly volatile. Standard international real business cycle (IRBC) models cannot reproduce this fact. We show that TFP processes for the U.S. and the "rest of the world," is characterized by a vector error correction (VECM) and that adding cointegrated technology shocks to the standard IRBC model helps explaining the observed high real exchange rate volatility. Also we show that the observed increase of the real exchange rate volatility with respect to output in the last 20 year can be explained by changes in the parameter of the VECM.

Subject: Consumption, Real exchange rates, Sustainable growth, Total factor productivity, Vector error correction models

Keywords: Exchange rate, Standard deviation, WP

Publication Details

Pages:

54
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/212
Stock No:

WPIEA2009212
ISBN:

9781451873597
ISSN:

1018-5941

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