This study presents a two-good, two-country model with financial frictions, where banks facing a borrowing constraint intermediate funds between households and firms. The endogenous fluctuations of international relative prices increase the business cycle co-movement across countries when...

This paper argues that in the presence of intersectoral input-output linkages, microeconomic idiosyncratic shocks may lead to aggregate fluctuations. In particular, it shows that, as the economy becomes more disaggregated, the rate at which aggregate volatility decays is determined by the...