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News-driven international business cycles

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  • Kosaka Michiru Sakane

    (Faculty of Liberal Arts, Sophia University, 7-1, Kioi-cho, Chiyoda-Ku, Tokyo, 102-8554 Japan)

Abstract

This paper examines the international transmission effects of news about the total factor productivity (TFP) in the US on the Canadian and Japanese economies. I develop and estimate a two-country real business cycle model to generate booms in Canadian and Japanese variables in response to news about future US TFP. I find that international macroeconomic comovements can be generated by news about the future TFP in the US. Unlike previous studies, I show that the response of the Canadian or Japanese TFP to a US news shock is important for generating the boom observed in the empirical analysis. The estimated preference parameters indicate that eliminating the wealth effect on hours worked is important. I also show that a low elasticity of substitution between domestically and foreign-produced intermediate goods can also help explain the domestic boom created by a news shock.

Suggested Citation

  • Kosaka Michiru Sakane, 2013. "News-driven international business cycles," The B.E. Journal of Macroeconomics, De Gruyter, vol. 13(1), pages 1-43, May.
    • Handle: RePEc:bpj:bejmac:v:13:y:2013:i:1:p:43:n:11
    DOI: 10.1515/bejm-2012-0115
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    References listed on IDEAS

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    Cited by:

    1. Paul Beaudry & Franck Portier, 2014. "News-Driven Business Cycles: Insights and Challenges," Journal of Economic Literature, American Economic Association, vol. 52(4), pages 993-1074, December.
    2. Daniele Siena, 2021. "The Euro Area Periphery and Imbalances: Is it an Anticipation Story?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 40, pages 278-308, April.
    3. Andrei A Levchenko & Nitya Pandalai-Nayar, 2020. "Tfp, News, and “Sentiments”: the International Transmission of Business Cycles," Journal of the European Economic Association, European Economic Association, vol. 18(1), pages 302-341.
    4. Daniele Siena, 2017. "What's News in International Business Cycles," 2017 Meeting Papers 1206, Society for Economic Dynamics.

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