Discussion Paper Series 2011-E-11

The World Has More Than Two Countries: Implications of Multi-Country International Real Business Cycle Models

Hirokazu Ishise

The cross-country correlations of international real business cycle models depend critically on the number of countries in the models. A positive productivity shock in one country will stimulate investment in the country that has experienced the shock, while reducing internal investment in the other countries, which will then simultaneously experience a slump. This comovement mechanism is absent in two-country models.

Keywords: International Real Business Cycles; Cross-Country Correlations; Multi-Country; Country Size

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2011 Bank of Japan All Rights Reserved.

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