Animal Spirits and the International Transmission of Business Cycles

Arbeitspapier

It is well-known that the high synchronization of the business cycles among industrial countries cannot easily be replicated in standard open economy macroeconomic models without assuming that the exogenous shocks hitting these countries are highly correlated. We develop a two-country behavioral macroeconomic model where the synchronization of the business cycle is produced endogenously. The main channel of synchronization occurs through a propagation of “animal spirits”, i.e. waves of optimism and pessimism that become correlated internationally. We find that this propagation occurs with relatively low levels of trade integration. We also study the transmission of demand and supply shocks from one country to the other and find that the size of this transmission also depends on animal spirits. As a result, the size of the transmission depends on the timing of the shock.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 5810

Classification and Topics

• Classification: Wirtschaft ; General Aggregative Models: General
• Subject: animal spirits ; monetary policy ; monetary union ; business cycle

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De Grauwe, Paul ; Ji, Yuemei
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/130432
• Last update: 10.03.2025, 11:44 AM CET