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Some Puzzles on International Comovements: The Role of International Trade and the Structure of the Banking Industry

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  • Maria Pia Olivero

Abstract

This paper finds a solution to some of the discrepancies between the data and what standard complete markets models predict. Specifically, those related to the cross-country correlations of consumption, output and factors of production. I match the data and get positive cross country comovements of investment and employment, and a cross-country correlation of consumption lower than that of output. I do this through the introduction of a “demand channel†given by trade in goods, credit market frictions and a non-competitive banking industry, into an otherwise standard two-country RBC model. In this model financial flows international mobility is reduced appealing to arbitrage arguments that guide saving decisions in a decentralized economy. Equity flows are not allowed in this setup

Suggested Citation

  • Maria Pia Olivero, 2004. "Some Puzzles on International Comovements: The Role of International Trade and the Structure of the Banking Industry," 2004 Meeting Papers 188, Society for Economic Dynamics.
    • Handle: RePEc:red:sed004:188
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    More about this item

    Keywords

    international trade; banking; puzzles;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance

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