IDEAS home Printed from https://ideas.repec.org/p/qed/wpaper/774.html
   My bibliography  Save this paper

Realistic Cross-Country Consumption Correlations in a Two-Country, Equilibrium, Business Cycle Model

Author

Listed:
  • Michael B. Devereux
  • Allan W. Gregory
  • Gregor W. Smith

Abstract

A well-known feature of one-good, multi-agent, Arrow-Debreu economies with identical additively-separable, homothetic preferences is that the consumptions of all agents are perfectly correlated. Such economies are widely used in interpreting business cycles but seem to be inconsistent with observed cross-country correlations of aggregate consumption. This paper provides an example of a two-country real business cycle model in which preferences are not separable between consumptions and labor supply. The model has a simple closed-form solution, and allows for fluctuations in labor supply in equilibrium. Moreover, it generates correlations between national consumption rates which are close to some of those observed in historical data.

Suggested Citation

  • Michael B. Devereux & Allan W. Gregory & Gregor W. Smith, 1990. "Realistic Cross-Country Consumption Correlations in a Two-Country, Equilibrium, Business Cycle Model," Working Paper 774, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:774
    as

    Download full text from publisher

    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_774.pdf
    File Function: First version 1990
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:qed:wpaper:774. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mark Babcock (email available below). General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.