GROWTH AND THE INTERNATIONAL TRANSMISSION OF BUSINESS CYCLES

Two-country single-good real business cycle models predict that the cr osscountry correlation of output is smaller than the cross-country cor relations of consumption and productivity, in contrast to the evidence in historical samples. The objective of this paper is to reproduce th e observed empirical evidence in a two-country real business cycle mod el with endogenous growth. Central features of the model include a non market sector and international externalities in production. The model generates realistic cross-country correlations for output, consumptio n, and productivity with standard parameter values.