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International Real Business Cycles

Working Paper 426 | Revised October 1, 1991

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Authors

David K. Backus

Finn E. Kydland

International Real Business Cycles

Abstract

We ask whether a two-country real business cycle model can account simultaneously for domestic and international aspects of business cycles. With this question in mind, we document a number of discrepancies between theory and data. The most striking discrepancy concerns the correlations of consumption and output across countries. In the data, outputs are generally more highly correlated across countries than consumptions. In the model we see the opposite.