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  • 1
    Bern: University of Bern, Department of Economics
    Publication Date: 2019-10-25
    Description: 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.
    Keywords: E22 ; E32 ; F41 ; ddc:330 ; International Business Cycles ; Investment ; Cross-country Correlations ; Intangible Capital
    Repository Name: EconStor: OA server of the German National Library of Economics - Leibniz Information Centre for Economics
    Language: English
    Type: doc-type:workingPaper
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