Staggered wages, financial frictions, and the international comovement problem

Yossi Yakhin

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Standard international real business cycle models often generate negative cross-country correlations in labor and investment. The data, however, display positive correlations. This paper studies the effect of real wage rigidity and financial frictions on international comovement. We find that staggered wages mainly improve the cross-country correlation of labor, while financial frictions improve investment comovement. However, each friction alone cannot account for the magnitude of international correlations of either variable. When the two imperfections are introduced together, the effect of each friction endogenously reinforces the other and the model generates realistic correlations in both variables.

Original languageEnglish
Pages (from-to)148-171
Number of pages24
JournalReview of Economic Dynamics
Volume10
Issue number1
DOIs
StatePublished - 1 Jan 2007
Externally publishedYes

Keywords

  • Comovement
  • Incomplete financial markets
  • International real business cycles
  • Staggered wages

ASJC Scopus subject areas

  • Economics and Econometrics

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