in an arrow–debreu economy, i.e. an economy with a complete set of state-contingent markets, country-specific output risks should be pooled and domestic consumption growth should not depend heavily on country-specific income shocks. so according to theory we should observe that consumption is much more correlated across countries than output. what backus, kehoe and kydland found in their article from 1992 was the opposite, namely that consumption is much less correlated across countries than output.