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150 CHAPTER 5. INTERNATIONAL REAL BUSINESS CYCLESTable 5.2: Calibrated Closed-Economy ModelStd. AutocorrelationsDev. 1 2 3 4 6y t 0.022 0.90 0.79 0.67 0.53 0.23c t 0.023 0.97 0.89 0.77 0.63 0.31i t 0.034 0.70 0.50 0.36 0.19 -0.04Cross correlation with y t−k at k6 4 1 0 -1 -4 -6c t 0.49 0.77 0.96 0.90 0.79 0.33 0.04i t 0.29 0.11 0.41 0.74 0.73 0.61 0.44other against a bad relative technology shock so we can examine thebehavior of the current account.MeasurementWe will call the Þrst country the ‘US,’ and second country ‘Europe.’The data for European output, government spending, investment, andconsumption are the aggregate of observations for the UK, France, Germany,and Italy. The aggregate of their current account balances sufferfrom double counting and does not make sense because of intra-European trade. Therefore, we examine only the US current account,which is measured as a fraction of real GDP.Table 5.3 displays the features of the data that we will attempt toexplain–their volatility, persistence (characterized by their autocorrelations)and their co-movements (characterized by cross correlations).Notice that US and European consumption correlation is lower thanthe their output correlation.The Two-Country ModelBoth countries experience identical rates of depreciation of physicalcapital, long-run technological growth X t+1 /X t = Xt+1/X ∗ t∗ = γ, have