Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204910
Authors: 
Baldi, Guido
Bodmer, André
Year of Publication: 
2018
Series/Report no.: 
Discussion Papers No. 18-10
Abstract: 
We analyze the effects of intangible investment on international output synchronization. Using a dynamic stochastic general equilibrium model, we find that an increase in the importance of intangible capital leads to a higher degree of output comovement across countries. Therefore, countries in which intangible capital is more important are better suited to economic integration, such as forming a monetary union. This offers an insightful perspective on the potential relation between the considerable differences in intangible capital among Eurozone members and the discussion surrounding the Eurozone as a sub-optimal currency area. A high stock of intangible capital also tends to attract foreign equity investments, in particular foreign direct investments. We find that cross-border equity holdings in tangible and intangible capital further increase the degree of output synchronization. Our results imply that policy reforms to incentivize higher intangible capital formation and cross-border equity investments may not only foster economic growth but also improve the functioning of the monetary policy in the Eurozone.
Subjects: 
International Business Cycles
Investment
Cross-country Correlations
Intangible Capital
JEL: 
E22
E32
F41
Document Type: 
Working Paper

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