Data Management

International Business Cycle Accounting

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Executive Summary

In this paper, the author extends the business cycle accounting method a la Chari, Kehoe and McGrattan (2007) to a two-country international business cycle model and quantifies the effect of the disturbances in relevant markets on the business cycle correlation between Japan and the US over the 1980-2008 periods. This paper finds that disturbances in the labor market and production efficiency are important in accounting for the recent increase in the cross-country output correlation. If international financial market integration is important for considering the recent increase in cross-country output correlation, it must operate through an increase in the cross-country correlation of disturbances in the labor market and production efficiency, and not in the domestic investment market.

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