skip to content

Faculty of Economics

Journal Cover

Corsetti, G., Dedola, L., and Leduc, S.

The international dimension of productivity and demand shocks in the US economy

Journal of the European Economic Association

Vol. 12(1) pp. 153-176 (2014)

Abstract: This paper analyzes the cross-country effects of productivity and demand disturbances in the United States identified with sign restrictions based on standard theory. Productivity gains in US manufacturing increase US consumption and investment vis-à-vis foreign countries, resulting in a trade deficit and higher international prices of US goods, despite the rise in their supply. Financial adjustment works via a higher global value of US equities, real dollar appreciation, and an expansion of US gross foreign liabilities as well as assets. Positive demand shocks to US manufacturing also increase investment and cause a real dollar appreciation, but have limited effects on the trade balance and net foreign assets. Our findings emphasize the importance for macroeconomic interdependence of endogenous fluctuations in aggregate demand across countries in response to business cycle shocks.

Keywords: International transmission mechanism, structural VARs, sign restrictions, consumption risk sharing, US dollar real exchange rate

JEL Codes: F32, F41, F42

Author links: Giancarlo Corsetti  

Publisher's Link:

Papers and Publications

Recent Publications

Jochmans, K., and Weidner, M. Fixed-Effect Regressions on Network Data Econometrica [2019]

Onatski, A. and Wang, C. Alternative Asymptotics for Cointegration Tests in Large VARs Econometrica [2018]

Corsetti, G., Mavroeidi, E., Thwaites, G. and Wolf, M. Step away from the zero lower bound: small open economies in a world of secular stagnation Journal of International Economics [2019]

Toxvaerd, F.M.O. Rational Disinhibition and Externalities in Prevention International Economic Review [2019]