The effects of surprise and anticipated technology changes on international relative prices and trade

Deokwoo Nam and Jian Wang

Journal of International Economics, 2015, vol. 97, issue 1, 162-177

Abstract: This paper argues that it is important to distinguish surprise and anticipated components of total factor productivity (TFP) when we study the international transmission of TFP shocks. We document that surprise and anticipated shocks to US TFP induce distinct dynamics for international relative prices (the real exchange rate and the terms of trade) and international trade (real exports, real imports, and the trade balance). Our empirical findings can reconcile some conflicting empirical results in the literature and hence lead to a better understanding of the international transmission of TFP shocks. In addition, we evaluate a standard international macroeconomic model and discuss the mechanisms that may help to replicate our empirical findings.

Keywords: International transmission of TFP shocks; News shocks; Real exchange rate; Trade balance; Backus–Smith puzzle; Impulse response function matching estimation (search for similar items in EconPapers)
JEL-codes: E32 F31 F41 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (17)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:97:y:2015:i:1:p:162-177

DOI: 10.1016/j.jinteco.2015.04.009

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