International business cycle and transmission mechanis

International business cycle models have not been very successful in replicating important features of the international transmission of business cycles, for example the quantity anomaly and the price anomaly. After analyzing more complete description of business cycle facts including nominal and financial variables for 142 countries, this dissertation extends previous works by introducing multiple sectors and richer channels of international transmission . Each country has two production sectors, traded and non-traded good sector. Economic agents distinguish between three types of goods: home traded good, foreign traded good, and home non-traded good. In addition to international financial transaction and technology spillovers, consumers (and government) in the model demand all three goods, and firms (and government) also need all three goods for investment. I show that these features of the model, especially investment interdependence, are important and can generate positive cross-country correlation of output, consumption, employment, investment, and high volatility in export, import, terms of trade, and real exchange rate that are compatible with the data. I also find that although these transmission mechanisms amplify international comovement, contemporaneously correlated technology shocks are more important in generating international business cycles.;When this model is extended to incorporate government expenditures , I can analyze the international spillover of fiscal policy. A temporary rise in government consumption stimulates the foreign economy as well as the domestic economy while a temporary rise in government investment has negative influence on activity abroad. I also find that fiscal policies are transmitted from one country to another via worldwide investment and changes in relative prices such as real interest rate, terms of trade, and real exchange rate. Consequently, multiple-commodity setting is the proper framework and important in analyzing policy spillovers. The theoretical model developed in this dissertation and the results on international transmission of fiscal policy shock can be used in further research on important issues regarding international policy coordination.