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93:(1996) reports average correlation of OECD countries with world consumption (35 “benchmark” countries) of .43, whereas the average OECD country’s output correlation with world benchmark is 0.52. The really puzzling part of these results is not that consumption levels are not perfectly correlated, but that they are less correlated than output. Apparently, there is hardly any risk sharing.
128:(1995) suggests two means of breaking the link between prices and quantities and making it hard for households to smooth consumption by trade. The first is nontraded goods: Suppose households like to consume goods that cannot be traded, like some services. If there is a positive technology shock raising their supply, they can’t
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of these goods by exporting them abroad. The second is "taste shocks": If consumption rises in one country without any change in the economic environment, it will borrow abroad, driving up the interest rate and inducing the foreign country to cut back on its consumption. So consumption could be
66:, country-specific output risks should be pooled and domestic consumption growth should not depend heavily on country-specific income shocks. So according to theory we should observe that consumption is much more correlated across countries than output. What
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consumption and output for 11 advanced countries relative to the US. The measured average consumption correlation was .19, whereas the average output correlation was .31.
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Obstfeld, Maurice; Rogoff, Kenneth (2000), "The Six Major
Puzzles in International Macroeconomics: Is There a Common Cause?", in Bernanke, Ben; Rogoff, Kenneth (eds.),
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found in their article from 1992 was the opposite, namely that consumption is much less correlated across countries than output.
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Obstfeld and Rogoff (2000) identifies this as one of the six major puzzles in international economics. The others are the
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Backus, David K.; Kehoe, Patrick J.; Kydland, Finn E. (1995), "International
Business Cycles: Theory and Evidence", in
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310:(1995), "Tastes and Technology in a Two-Country Model of the Business Cycle: Explaining International Comovements",
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112:, and the Baxter-Stockman neutrality of exchange rate regime puzzle. It is also related to the
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Backus, Kehoe, and
Kydland (1992) calculate the correlation of
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Backus, David K.; Kehoe, Patrick J.; Kydland, Finn E. (1992),
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the purchasing power and exchange rate disconnect puzzle
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Feldstein-Horioka savings-investment correlations puzzle
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Backus–Kehoe–Kydland consumption correlation puzzle
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114:Backus-Smith consumption-real exchange rate puzzle
253:, vol. 15, The MIT Press, pp. 339–390,
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120:Attempts to account for the perceived anomaly
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273:Backus, David K.; Smith, Gregor W. (1993),
225:Foundations of International Macroeconomics
221:Obstfeld, Maurice; Rogoff, Kenneth (1996),
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133:negatively correlated across countries.
64:complete set of state-contingent markets
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199:Frontiers of Business Cycle Research
152:"International Real Business Cycles"
358:. You can help Knowledge (XXG) by
282:Journal of International Economics
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251:NBER Macroeconomics Annual 2000
201:, Princeton University Press,
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410:International macroeconomics
294:10.1016/0022-1996(93)90021-O
160:Journal of Political Economy
18:Backus-Kehoe-Kydland puzzle
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38:, is the observation that
98:home bias in trade puzzle
62:, i.e. an economy with a
350:This article related to
313:American Economic Review
130:smooth their consumption
102:equity home bias puzzle
46:across countries than
405:International finance
420:Macroeconomics stubs
60:Arrow–Debreu economy
34:, also known as the
306:Stockman, Alan C.;
30:In economics, the
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260:978-0-262-02503-4
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