This paper investigates the effects of introducing imperfect competition inan international business-cycle model. We provide some internationalevidence on markups and analyze the implications of increasing returns toscale and monopolistic competition for the effects and the internationaltransmission of technology and government spending shocks. We also considerexogenous markup fluctuations as a source of shocks and of transmission ofbusiness cycles. We show that imperfect competition improves the behavior ofa standard model driven by technology shocks, although the behavior offoreign trade variables remains unexplained. We also show that animperfectly competitive model driven by government shocks can explain theinternational business cycle at least as well as a model driven bytechnology shocks.