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INTERNATIONAL MACROECONOMIC FLUCTUATIONS

Published online by Cambridge University Press:  16 May 2014

Soyoung Kim  and
Jaewoo Lee
Soyoung Kim*
Affiliation:
Seoul National University
Jaewoo Lee
Affiliation:
International Monetary Fund
*
Address correspondence to: Soyoung Kim, Department of Economics, Seoul National University, San 56-1, Sillim-Dong, Gwanak-Gu, Seoul 151-746, Korea; e-mail: [email protected].
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Abstract

This paper investigates the international dimension of economic fluctuations and transmission of structural shocks by estimating a structural VAR model for the United States, the euro area, and Japan—the three largest economies—over the post-Bretton Woods period. The main findings are as follows: (1) Supply-side shocks (technology and supply-level shocks) explain most of the fluctuations in cross-country output deviations. (2) Real-demand shocks are the most important source of real-exchange-rate fluctuations. (3) Current account is usually influenced by all types of shocks, with technology shocks playing a stronger role. In particular, technology shocks play a prominent role in the existing global imbalance (the large external deficit of the United States). (4) Technology and supply-level shocks generate opposite-signed correlations between output differential and current account, whereas real and nominal-demand shocks generate opposite-signed correlations between real exchange rate and current account.

Keywords

Structural VARCurrent AccountReal Exchange RateCross-Country Output DeviationTechnology Shocks
Type
Articles
Information
Macroeconomic Dynamics , Volume 19 , Issue 7 , October 2015 , pp. 1509 - 1539
Copyright
Copyright © Cambridge University Press 2014 

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