Stylized Facts and International Real Business Cycles: The German Case

Michael Gail,

Universitaet Gesamthochschule Siegen

The paper is concerned with the derivation of stylized facts for Germany in the tradition of the Real Business Cycle literature using the Hodrick/Prescott-filter. An International Real Business Cycle model is studied and calibrated to the German economy to explain these stylized facts. The model should provide a better explanation of the international correlations of outputs, consumption, investment and so on. Special attention is given to the lead-lag structure of the correlations.

The paper is in line with the one of Baxter/Crucini (1995), Business Cycles and the Asset Structure of Foreign Trade, International Economic Review 36, 821-854. It is a single-good two-country model with technology shocks augmented by government shocks and a special utility function which allows for a nonseparability of consumption and leisure (Greenwood/Hercowitz/Huffman-preferences). Private consumption can be substituted by government consumption which acts like a taste shock in this way. A VAR (1) model is fitted to the exogenous processes. The combination of these features is new to the literature.