We study how the 2007-2009 crisis has changed the impact of financial integration on the transmission of international business cycles, focusing on a sample of 20 developed countries between 1978 and 2009. We use a differences-in-differences strategy for identification and investigate the effect of bilateral financial linkages on the co-movement of output, investment, and consumption before and...

We consider whether oil prices can account for business cycle asymmetries. We test for asymmetries based on the Markov switching autoregressive model popularized by Hamilton (1989), using the tests devised by Clements and Krolzig (2000). We select the transformation of the oil price of Lee, Ni and Ratti (1995), based on a linear analysis of the relationship between output growth and the oil pri...

This paper proposes a new method to forecast S&P 500 return distribution by combining quantile regression models using macro-finance variables with volatility-based models including various standard EGARCH and stochastic volatility specifications. 30 density forecasting models are compared and combined in an out-of-sample forecasting exercise. Using macro-finance variables is found to help subs...

We construct a two-country DSGE model with multiple stages of processing and localcurrency staggered price-setting to study cross-country quantity correlations driven by monetary shocks. The model embodies a mechanism that propagates a monetary surprise in the home country to lower the foreign price level while restraining the home price level from rising too quickly; and, it does so through re...

We provide a business cycle model in which endogenous markup fluctuations are the main driving force. These fluctuations occur due to some form of ‘animal spirits’, impelling firms in their entry-exit decisions within each sector. By contrast to existing models of the business cycle emphasizing the role of animal spirits, we do not rely on the sink property of the equilibrium to generate indete...

This paper proposes a simple model that formalizes a variant of Ohanian's (2001) conjecture explaining the productivity declines observed in the Great Depression. If a large payment shock like an asset-price collapse renders many firms insolvent, other economic agents become exposed to a higher risk of not being paid (payment uncertainty). The payment uncertainty causes endogenous disruptions o...

The Great Moderation refers to the fall in U.S. output growth volatility in the mid-1980s. At the same time, the United States experienced a moderation in inflation and lower average inflation. Using annual data since 1890, we find that an earlier 1946 moderation in output and consumption growth was comparable to that of 1984. To assess the impact of these moderations, we also isolate the 1969–...

Aggregate Shocks or Aggregate Information? Costly Information and Business Cycle Comovement When similar patterns of expansion and contraction are observed across sectors, we call this a business cycle. Yet explaining the similarity and synchronization of these cycles across industries remains a puzzle. Whereas output growth across industries is highly correlated, identifiable shocks, like shoc...

Most DSGE models assume full information and model-consistent expectations. This paper relaxes both these assumptions in the context of the stochastic growth model with incomplete markets and heterogeneous agents. Households do not have direct knowledge of the structure of economy or the values of aggregate quantities; instead they form expectations by learning from the prices in their marketco...

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. This paper investigates the relation between growth forecast ...