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Noisy information, risk sharing, and international business cycles
Author(s) -
Guo ZiYi
Publication year - 2020
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12447
Subject(s) - business cycle , economics , productivity , consumption (sociology) , international business , positive correlation , correlation , econometrics , negative correlation , information sharing , microeconomics , monetary economics , macroeconomics , computer science , mathematics , medicine , social science , geometry , management , sociology , world wide web
We introduce a noisy information structure into an otherwise standard international real business cycle model with two countries. When domestic firms observe current foreign technology with some noise, predictions of the model on international correlation can be very different from those of a standard perfect information model. We show that the model can explain: (a) positive output correlation both in complete and incomplete market models, (b) consumption correlation smaller than output correlation with an introduction of information‐constrained consumers, and (c) observation of both positive and negative productivity–hours correlation in two countries.