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Cointegrated TFP Processes and International Business Cycles
Author:
Vicente Tuesta null

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,
Juan F. Rubio-Ramirez null

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Mr. Pau Rabanal
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Series:
IMF Working Papers
Volume/Issue:
Volume 2009: Issue 212
Language:
English
Publication Date:
01 Sep 2009
DOI:
https://doi.org/10.5089/9781451873597.001
ISBN:
9781451873597
ISSN:
1018-5941
Pages:
54
Keywords:
WP; exchange rate; standard deviation
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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A puzzle in international macroeconomics is that observed real exchange rates are highly volatile. Standard international real business cycle (IRBC) models cannot reproduce this fact. We show that TFP processes for the U.S. and the "rest of the world," is characterized by a vector error correction (VECM) and that adding cointegrated technology shocks to the standard IRBC model helps explaining the observed high real exchange rate volatility. Also we show that the observed increase of the real exchange rate volatility with respect to output in the last 20 year can be explained by changes in the parameter of the VECM.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund