Variable Factor Utilization and International Business Cycles / Marianne Baxter, Dorsey Farr.

Format:

Book

Author/Creator:

Baxter, Marianne.

Contributor:

National Bureau of Economic Research.

Farr, Dorsey.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8392.

NBER working paper series no. w8392

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2001.

Summary:

When an economic boom produces high output, employment, and investment in the United States, there is usually a simultaneous boom in other industrialized countries. But, why? Answering this question is a central goal of international macroeconomics. However, multi-country dynamic equilibrium models have struggled with two major problems. The first difficulty is that the productivity shocks required by the model are implausibly large and volatile. Second, these models have difficulty explaining why factor inputs move together so closely across countries: realistic international comovement of business cycles requires implausibly high cross-country correlations of productivity shocks. This paper builds a model in which the utilization rates of capital and labor can be varied in response to shocks. We find that variable factor utilization is quite successful in (i) reducing the required size of productivity shocks; and (ii) increasing international comovement of factor inputs, with most of the improvement stemming from variable capital utilization.

Notes:

Print version record

July 2001.