Cyclical Properties of the U.S. Economy (BKK1992)

Standard Deviation

The standard deviation of output fluctuations is 1.71% (1954-1989).

Consumption (nondurables and services) is about half as volatile as output.

Investment in fixed capital is more than three times as volatile than output.

Hours worked is slightly less volatile than output.


Cyclical Properties

Consumption and output are procyclical.

Investment and output are procyclical.

Hours worked and output are procyclical.

Net exports and output are countercyclical.


International Comovements

Cross-country correlations for output are positive (except South Africa).

Cross-country correlations for consumption are positive but smaller than those for output.

The correlation between saving and investment rates show no clear pattern (No Feldstein-Horioka puzzle).

* saving (S) = output (Y) - consumption (C) - government purchases (G)


Theoritical Model (Two Country Kydland-Presott (1992) Model)

Consumption is more highly correlated across countries than we see in the data.

Output is less highly correlated across countries than we see in the data.

Investment is much more volatile than we see in the data.

The trade balance is much more volatile than we see in the data.

When small trading frictions are introduced, the volatilities of investment and net exports fall sharply.

A number of reasonable changes in the economy cannot change the results that the cross-country correlation of consumption is larger than the output correlation—an anomaly.

What's going on in the theoretical model?
Increase in productivity
->
increase in domestic investment (large), consumption, output
->
decrease in balance of trade (ΔI + ΔC > ΔY)

Backus, Kehoe and Kydland 1992 "International Real Business Cycles"
http://ideas.repec.org/p/ste/nystbu/93-21.html