Characterizing cross-country consumption correlations

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Abstract
General equilibrium models of international fluctuations which assume complete asset markets predict that consumption will be highly correlated across countries, while the data display correlations which are rather low. It is common to characterize this empirical regularity by noting that cross-country consumption correlations tend to be lower than corresponding output correlations. This paper reconsiders that characterization and demonstrates that it is not particularly robust. The paper also documents a related regularity that is more pervasive: Consumption fluctuations are more highly correlated with domestic production than with world output. Implications for the evaluation of theoretical models are discussed.
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