Globally Correlated Nominal Fluctuations
53 Pages Posted: 5 Oct 2013
Date Written: March 29, 2012
Cyclical fluctuations in nominal variables|aggregate price levels and nominal interest rates are documented to be substantially more synchronized across countries than cyclical fluctuations in real output. A transparent mechanism that can account for this striking feature of the nominal environment is highlighted. It is based on (small) cross-country spillovers of shocks and an interaction between Taylor rules and no-arbitrage conditions. The mechanism is quantitatively important for a wide range of plausible parameterizations and is found to be robust to modications of the economic environment that help account for other important features of domestic and international aggregate fluctuations.
Keywords: International fluctuations, prices, interest rates
JEL Classification: E31, E32, E43, F41
Suggested Citation: Suggested Citation