News and business cycles in open economies
By: Nir Jaimovich, Sergio Rebelo.
Contributors: Rebelo, Sergio.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13444.; Working paper series (National Bureau of Economic Research) -- working paper no. 13444.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 16
Subjects: Business cycles -- Econometric models
Description: It is well known that the neoclassical model does not generate comovement among macroeconomic aggregates in response to news about future total factor productivity. We show that this problem is generally more severe in open economy versions of the neoclassical model. We present an open economy model that generates comovement both in response to sudden stops and to news about future productivity and investment-specific technical change. We find that comovement is easier to generate in the presence of weak short-run wealth effects on the labor supply, adjustment costs to labor, and/or investment, and whenever the real interest rate faced by the economy rises with the level of net foreign debt.
Notes: "September 2007"

Includes bibliographical references (p. 14-16).

Also available in PDF from the NBER world wide web site (www.nber.org).