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Federal Reserve Bank of San Francisco
Working Paper Series
The international dimension of productivity and demand shocks in the U.S. economy
Giancarlo Corsetti
Luca Dedola
Sylvain Leduc
Abstract

Identifying productivity and real demand shocks in the US with sign restrictions based on standard theory, we provide evidence on real and financial channels of their international propagation. Productivity gains in US manufacturing have substantial macroeconomic effects, raising US consumption, investment and the terms of trade, relative to the rest of the world, while lowering US net exports. Significant international financial adjustment occurs via a rise in the global value of the US stock market, portfolio shifts in US foreign assets and liabilities, and especially real dollar appreciation. Positive demand shocks to US manufacturing also lead to real appreciation and raise investment, but have otherwise limited effects on trade flows. This evidence suggests a fundamental role of cross-country endogenous demand and wealth movements in shaping international macroeconomic interdependence.


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Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, The international dimension of productivity and demand shocks in the U.S. economy, Federal Reserve Bank of San Francisco, Working Paper Series 2009-09, 2009.
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Keywords: Productivity ; Trade ; Foreign exchange rates
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