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International Business Cycles with Endogenous Incomplete Markets
Open accessAbstract
Backus, Kehoe, and Kydland (1992), Baxter and Crucini (1995), and Stockman and Tesar (1995) find two major discrepancies between standard international business cycle models with complete markets and the data: In the models, cross-country correlations are much higher for consumption than for output, while in the data the opposite is true; and cross-country correlations of employment and investment are negative, while in the data they are positive. This paper introduces a friction into a standard model that helps resolve these anomalies. The friction is that international loans are imperfectly enforceable; any country can renege on its debts and suffer the consequences for future borrowing. To solve for equilibrium in this economy with endogenous incomplete markets, the methods of Marcet and Marimon (1999) are extended. Incorporating the friction helps resolve the anomalies more than does exogenously restricting the assets that can be traded.
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Cited by
The nature of credit constraints and human capital
Lochner, L. J., & Monge-Naranjo, A. (2011) · American Economic Review · doi:10.1257/aer.101.6.2487 · Cited by 347
Metadata
- Authors
- Kehoe, P. J., & Perri, F.
- Venue
- Econometrica
- Publisher
- The Econometric Society
- Published
- 2002-05
- Volume
- 70
- Issue
- 3
- Pages
- 907-928
- ISSN
- 0012-9682 (ISSN-L)
- 1468-0262
- OpenAlex
- W3110636891
- Cited by
- 534
- References
- 0
- FWCI
- 42.62
- Type
- journal article
- Language
- en
- Open access
- gold
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- Kehoe, P. J., & Perri, F. (2002). International Business Cycles with Endogenous Incomplete Markets. Econometrica. https://doi.org/10.1111/1468-0262.00314
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
