Journal
JOURNAL OF ECONOMIC DYNAMICS & CONTROL
Volume 31, Issue 1, Pages 1-23Publisher
ELSEVIER
DOI: 10.1016/j.jedc.2005.09.007
Keywords
international-business-cycle; international comovements; demand shocks; saving-investment puzzle; Feldstein-Horioka puzzle
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This paper explores the possibility that economic fluctuations may be largely demand-driven. It is shown that the stylized open-economy business cycle regularities documented by Feldstein and Horioka [1980. The Economic Journal 90 (June), 314 329] and Backus et al., [1992. Journal of Political Economy 100 (4), 745-775] can be explained by demand shocks alone even in a standard general equilibrium model. Frictions such as market incompleteness, increasing returns to scale, and sticky prices do not appear to be the preconditions for resolving these long-standing puzzles. (C) 2005 Elsevier B.V. All rights reserved.
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