By force of demand: explaining international comovements and the saving-investment correlation puzzle
Abstract: 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) and Backus, Kehoe and Kydland (1992) 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.
File(s): File format is application/pdf http://research.stlouisfed.org/wp/2005/2005-043.pdf
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2005