Sources and propagation of international output cycles: Common shocks or transmission?

This paper studies the generation and transmission of international cycles in a multicountry model with production and consumption interdependencies. Two sources of disturbance are considered and three channels of propagation are compared. Technology disturbances, which are mildly correlated across countries, are more successful than government expenditure disturbances in reproducing actual data. The presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data. (C) 1998 Elsevier Science B.V. All rights reserved.